Analysis of MEC Video - More Details Needed!
02-11-2018, 11:38 AM
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Analysis of MEC Video - More Details Needed!
Been (happily) busy doing other things, but circling back now because this issue is so critically important....
Recently the MEC released a video in which the introduction outlines how Fedex Pilots work many days and many nights, make many sacrifices, have faced an increased workload, and missed many birthdays, weddings and special occasions.
The video correctly states that over time, WITHOUT ANY CHANGES, our retirement will be worth less.
The MEC video states their goal is to “Protect the A Plan” and work toward improving it.
The key is removing the caps, but at the same time they are asking the pilots to take the investment risk.
The video states the MEC “could” negotiate a floor benefit and a stabilization reserve; however, the analysis in the video DOES NOT utilize a CAP Rate necessary to fund a stabilization reserve.
This lack of a CAP Rate allows the analysis to capture ALL of the returns in the “good years” allowing it to show higher values at the end of each scenario.
By not assuming a CAP Rate (e.g. 10%) this allows the analysis to be optimistic, but of course such an actual plan would have greater future risk in down years.
While the video draws specific conclusions based on one particular set of market returns (19 year period from 1999-2017) it does not disclose or explain many important assumptions.
1. What specifically is the “flat percentage of pay” Fedex will contribute to each pilot, each year?
This piece of information is critical, as we strive to understand the cost of this plan to the company. And compare it to the specific funding costs under our current A plan.
Given the videos conclusions that our benefits will increase considerably, there must be a considerable increase in company cost.
If “magical market returns” are the answer to increasing our benefit, why wouldn’t the company just continue to capture those on their own?
2. What is the specific “average career upgrade timeline” assumed?
Everyone knows, and new hires will very quickly learn, that a pilot’s quality of life is a factor of seniority – more specifically seat seniority.
Remember the introduction guys!
Without seeing the full model, it's safe to assume anyone who cannot, or does not want to upgrade, in accordance with the “assumed timeline” will earn less in retirement than what’s stated in the videos conclusions.
Having options and remaining flexible is a prudent approach to aviation, and is also a prudent approach when a pilot faces personal, quality of life choices over their personal 20, 25, 30,... 40 year career.
3. Why did the video assume the new plan agrees to 2017 IRS 401(a)17 income limits, but then implies the current A plan cap can never rise?
Clearly, the new plan assumes limits higher than $260,000, and assumes annual increases in those limits. What?????
Assuming an indexed limit that rises each year????
We’ve been told we have a complete inability to negotiate that.
4. The new VB plan assumes annual pay raises at 3% per year – without missing a beat!!
While this seems reasonable, it is not substantiated by historical negotiation patterns at Fedex. T
here are numerous instances where our pay raises have been delayed during contract negotiations.
Remember, every year and every dollar counts! The time value of money matters!!
Our 5-6 year-long contracts often take 2 years to negotiate.
5. The 5% hurdle rate is a reasonable assumption, however, please realize if the actual negotiated hurdle rate is higher, the forecast benefits WILL BE LESS!
It’s my contention the current video and analysis are being based on very optimistic plan features. Lowest possible hurdle rate - and without a CAP rate!
Please show the same model re-run with a 10% CAP that actually does help build the stabilization fund.
The results will CLEARLY be less.
6. This investment analysis assumes investment returns based on a 50% equities/50% fixed income portfolio.
This is a very reasonable and prudent assumption.
Lets not stray from it to chase fund yield, and lets dig a little deeper.
The devil is always in the details.
What equity benchmark are they using? (A latter MEC video states it was the S&P 500). But what about the income portfolio?
10 year US Treasury...30 year US Treasury... a corporate bond index?
What “professional management” fees need to be subtracted from these assumed index returns?
And lets be honest, only about 20% of active fund managers meet or beat their indexes. Will the new VB plan somehow be better managed then our current A plan?
Any truly objective analysis would assume the plan rates of return will be the same.
Regardless, please disclose the actual indexes used and the actual rates of return for each asset class in the years used. 1999-2017. This is critically important. Trust, but verify.
7. The VB analysis assumes 1,000 credit hours a year, a fair and reasonable assumption, however, it assumes “no breaks in service”.
What happens if a pilot goes on disability?
Will only his disability income count that year?
What happens to guys who take “mil leave” and thereby, have lower pay than the assumed 1,000 hours per year?
Under our current high 5 model, a pilot earns years of service while on disability and can “recover” from a break in service by still obtaining his “high 5” when he returns.
A guy on mil leave is similarly protected under our current A plan.
A military pilot may decide to fly less at Fedex in any particular year based on his responsibilities to his Guard or Reserve unit. Taking “time off” to serve in your unit will now directly affect your retirement. Remember, Every year counts!!
8. The VB analysis shows payouts at 60 and 65. What happens at Age 55?
While it’s true few Fedex pilots retire early, it’s also true few Fedex pilots are hired at age 25. It’s certainly not even close to one-third of the crew force, but they spent one third of the time showing that analysis.
Here’s some additional data, I feel our MEC should FULLY DISCLOSE.
How may of our current pilots have already maxed out their High 5?
How many of our current pilots have already maxed out their 25 years of service?
What is the actual distribution of pilots currently on property, by “age at date of hire”?
While it’s intriguing to see the forecast benefit to pilots hired at age 25, that cohort is clearly in the minority.
Additionally, that cohort could also substantially benefit from other options to improve our current Total, Hybrid Retirement Plan – such as increasing the B fund from 9% to 13%.
Bottom-line, its good to see the MEC finally begin to release more information about the new VB plan, however, the devil is always in he details.
All the details and All the assumptions have yet to be fully disclosed.
I’m not referring to the actual negotiated details --- ''m referring to the one’s assumed in these models.
Lets demand full disclosure & full analysis --- so we may compare all of our Total Retirement Compensation options.
Lets continue to research broadly and think critically.
In Unity,
DLax
Recently the MEC released a video in which the introduction outlines how Fedex Pilots work many days and many nights, make many sacrifices, have faced an increased workload, and missed many birthdays, weddings and special occasions.
The video correctly states that over time, WITHOUT ANY CHANGES, our retirement will be worth less.
The MEC video states their goal is to “Protect the A Plan” and work toward improving it.
The key is removing the caps, but at the same time they are asking the pilots to take the investment risk.
The video states the MEC “could” negotiate a floor benefit and a stabilization reserve; however, the analysis in the video DOES NOT utilize a CAP Rate necessary to fund a stabilization reserve.
This lack of a CAP Rate allows the analysis to capture ALL of the returns in the “good years” allowing it to show higher values at the end of each scenario.
By not assuming a CAP Rate (e.g. 10%) this allows the analysis to be optimistic, but of course such an actual plan would have greater future risk in down years.
While the video draws specific conclusions based on one particular set of market returns (19 year period from 1999-2017) it does not disclose or explain many important assumptions.
1. What specifically is the “flat percentage of pay” Fedex will contribute to each pilot, each year?
This piece of information is critical, as we strive to understand the cost of this plan to the company. And compare it to the specific funding costs under our current A plan.
Given the videos conclusions that our benefits will increase considerably, there must be a considerable increase in company cost.
If “magical market returns” are the answer to increasing our benefit, why wouldn’t the company just continue to capture those on their own?
2. What is the specific “average career upgrade timeline” assumed?
Everyone knows, and new hires will very quickly learn, that a pilot’s quality of life is a factor of seniority – more specifically seat seniority.
Remember the introduction guys!
Without seeing the full model, it's safe to assume anyone who cannot, or does not want to upgrade, in accordance with the “assumed timeline” will earn less in retirement than what’s stated in the videos conclusions.
Having options and remaining flexible is a prudent approach to aviation, and is also a prudent approach when a pilot faces personal, quality of life choices over their personal 20, 25, 30,... 40 year career.
3. Why did the video assume the new plan agrees to 2017 IRS 401(a)17 income limits, but then implies the current A plan cap can never rise?
Clearly, the new plan assumes limits higher than $260,000, and assumes annual increases in those limits. What?????
Assuming an indexed limit that rises each year????
We’ve been told we have a complete inability to negotiate that.
4. The new VB plan assumes annual pay raises at 3% per year – without missing a beat!!
While this seems reasonable, it is not substantiated by historical negotiation patterns at Fedex. T
here are numerous instances where our pay raises have been delayed during contract negotiations.
Remember, every year and every dollar counts! The time value of money matters!!
Our 5-6 year-long contracts often take 2 years to negotiate.
5. The 5% hurdle rate is a reasonable assumption, however, please realize if the actual negotiated hurdle rate is higher, the forecast benefits WILL BE LESS!
It’s my contention the current video and analysis are being based on very optimistic plan features. Lowest possible hurdle rate - and without a CAP rate!
Please show the same model re-run with a 10% CAP that actually does help build the stabilization fund.
The results will CLEARLY be less.
6. This investment analysis assumes investment returns based on a 50% equities/50% fixed income portfolio.
This is a very reasonable and prudent assumption.
Lets not stray from it to chase fund yield, and lets dig a little deeper.
The devil is always in the details.
What equity benchmark are they using? (A latter MEC video states it was the S&P 500). But what about the income portfolio?
10 year US Treasury...30 year US Treasury... a corporate bond index?
What “professional management” fees need to be subtracted from these assumed index returns?
And lets be honest, only about 20% of active fund managers meet or beat their indexes. Will the new VB plan somehow be better managed then our current A plan?
Any truly objective analysis would assume the plan rates of return will be the same.
Regardless, please disclose the actual indexes used and the actual rates of return for each asset class in the years used. 1999-2017. This is critically important. Trust, but verify.
7. The VB analysis assumes 1,000 credit hours a year, a fair and reasonable assumption, however, it assumes “no breaks in service”.
What happens if a pilot goes on disability?
Will only his disability income count that year?
What happens to guys who take “mil leave” and thereby, have lower pay than the assumed 1,000 hours per year?
Under our current high 5 model, a pilot earns years of service while on disability and can “recover” from a break in service by still obtaining his “high 5” when he returns.
A guy on mil leave is similarly protected under our current A plan.
A military pilot may decide to fly less at Fedex in any particular year based on his responsibilities to his Guard or Reserve unit. Taking “time off” to serve in your unit will now directly affect your retirement. Remember, Every year counts!!
8. The VB analysis shows payouts at 60 and 65. What happens at Age 55?
While it’s true few Fedex pilots retire early, it’s also true few Fedex pilots are hired at age 25. It’s certainly not even close to one-third of the crew force, but they spent one third of the time showing that analysis.
Here’s some additional data, I feel our MEC should FULLY DISCLOSE.
How may of our current pilots have already maxed out their High 5?
How many of our current pilots have already maxed out their 25 years of service?
What is the actual distribution of pilots currently on property, by “age at date of hire”?
While it’s intriguing to see the forecast benefit to pilots hired at age 25, that cohort is clearly in the minority.
Additionally, that cohort could also substantially benefit from other options to improve our current Total, Hybrid Retirement Plan – such as increasing the B fund from 9% to 13%.
Bottom-line, its good to see the MEC finally begin to release more information about the new VB plan, however, the devil is always in he details.
All the details and All the assumptions have yet to be fully disclosed.
I’m not referring to the actual negotiated details --- ''m referring to the one’s assumed in these models.
Lets demand full disclosure & full analysis --- so we may compare all of our Total Retirement Compensation options.
Lets continue to research broadly and think critically.
In Unity,
DLax
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