New Variable Benefit Plan Modeler
05-22-2018, 12:39 PM
#41
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Joined APC: Aug 2006
Posts: 1,820
Originally Posted by Albief15
Wonder why our nums are so different. I do have a high 5 complete, so I max whatever they freeze with old plan. Until last couple of years was not a quality of life bidder, and chased dollars. Starting to ease off now with one kid out of college and just enjoying life.
Interested in seeing those with and without high 5 done to get a glimpse of how the results are scattered.
My hope had been enough bump at 60 or 62 to bail early. I prolly still will go then, but it wont be huge gains in the plan that allow it, but rather my own investing and work.
Another question...and maybe I should review materials more....what IF we have a great couple years in market. How much more of the upside could we expect to capture if we had a run of good luck?
Interested in seeing those with and without high 5 done to get a glimpse of how the results are scattered.
My hope had been enough bump at 60 or 62 to bail early. I prolly still will go then, but it wont be huge gains in the plan that allow it, but rather my own investing and work.
Another question...and maybe I should review materials more....what IF we have a great couple years in market. How much more of the upside could we expect to capture if we had a run of good luck?
05-22-2018, 12:47 PM
#42
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Joined APC: Aug 2006
Posts: 1,820
Originally Posted by kronan
2% floor still results in a better outcome than our current plan
If the company is using a 6.5% rate of return right now for our A plan, (PBGC requires that rate of return), and a 2% rate of return beats our current A plan with this new VB plan, doesn't that mean that the company will have to contribute a lot more money with the VB plan? How can a 2% rate of return beat a 6.5% rate of return without investing more at 2%? It must be that special sauce that is being used by the union.
05-22-2018, 01:29 PM
#43
Contract 2021
Joined APC: Jan 2007
Position: 777 - Both
Posts: 438
Originally Posted by pinseeker
You mean that floor that still needs to be negotiated and that the company needs to agree to? Do you actually think that the company will agree to guaranty a 2% return every year regardless of market return?
If the company is using a 6.5% rate of return right now for our A plan, (PBGC requires that rate of return), and a 2% rate of return beats our current A plan with this new VB plan, doesn't that mean that the company will have to contribute a lot more money with the VB plan? How can a 2% rate of return beat a 6.5% rate of return without investing more at 2%? It must be that special sauce that is being used by the union.
If the company is using a 6.5% rate of return right now for our A plan, (PBGC requires that rate of return), and a 2% rate of return beats our current A plan with this new VB plan, doesn't that mean that the company will have to contribute a lot more money with the VB plan? How can a 2% rate of return beat a 6.5% rate of return without investing more at 2%? It must be that special sauce that is being used by the union.
First off, the 2% floor that's discussed in the video is an "accrual rate", not a "return on investment", which is what the company 6.5% target is for in the A-Plan. And the PBGC DOESN'T require that, rather, it's determined by the FedEx Investment Manager of the Trust. PBGC has nothing to do with that.
The Variable Plan is seeking a 5% hurdle which is also the targeted ROI, not the floor accrual rate. You may believe its special sauce, that's why they hired Actuaries and not pilots to figure this out.
Also, its not just the floor that needs to be negotiated, the entire plan would considering that it hasn't been approved for negotiations by the MEC last I heard.
But hey, based on your faulty understanding, at least you've come to the conclusion this plan isn't for you.
05-22-2018, 01:59 PM
#44
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Joined APC: Aug 2006
Posts: 1,820
Originally Posted by FDX1
I don't think you're correct.
First off, the 2% floor that's discussed in the video is an "accrual rate", not a "return on investment", which is what the company 6.5% target is for in the A-Plan. And the PBGC DOESN'T require that, rather, it's determined by the FedEx Investment Manager of the Trust. PBGC has nothing to do with that.
The Variable Plan is seeking a 5% hurdle which is also the targeted ROI, not the floor accrual rate. You may believe its special sauce, that's why they hired Actuaries and not pilots to figure this out.
Also, its not just the floor that needs to be negotiated, the entire plan would considering that it hasn't been approved for negotiations by the MEC last I heard.
But hey, based on your faulty understanding, at least you've come to the conclusion this plan isn't for you.
First off, the 2% floor that's discussed in the video is an "accrual rate", not a "return on investment", which is what the company 6.5% target is for in the A-Plan. And the PBGC DOESN'T require that, rather, it's determined by the FedEx Investment Manager of the Trust. PBGC has nothing to do with that.
The Variable Plan is seeking a 5% hurdle which is also the targeted ROI, not the floor accrual rate. You may believe its special sauce, that's why they hired Actuaries and not pilots to figure this out.
Also, its not just the floor that needs to be negotiated, the entire plan would considering that it hasn't been approved for negotiations by the MEC last I heard.
But hey, based on your faulty understanding, at least you've come to the conclusion this plan isn't for you.
I think that you need yo look at this again. Yes, return was a poor choice of words, but the floor rate does guarantee an increase of 2% of future salaries if the hurdle rate isn't met. Also, the PBGC DOES require a rate of return for calculating whether your plan is properly funded or not. It's either 6.5% or 6.75%. I went with 6.5% because that is what Kronan stated.
We currently have a 2% guarantee on our A plan. We are limited to a salary cap of $260K. If the VB plan keeps that same rate of 2%, yet pays out more money even if the hurdle rate of 5% isn't met, how does the VB plan pay more money with just the floor rate if the company isn't required to contribute more money? If the VB plan is requiring the company to guarantee a 2% of salary per year of service in retirement, how is that different than increasing the A plan to IRS 401(a)(17) earnings limits?
Enjoy your lie flat seat and associated bank.
05-22-2018, 05:06 PM
#45
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Joined APC: Aug 2006
Posts: 1,820
Here's some more interesting info about the modeler.
1. For a pilot hired today, in 25 years they will earn $610K with historical upgrade selected in the modeler. With our current WB captain pay rate of $304.13 per hour and 3% yearly increases in pay rates, a WB captain should be making $636 per hour. Using the unions assumed 1000 credit hours a year, that would have the pilot making $636K their final year. Where did the other $26k go?
2. The modeler used an increase of IRS compensation limits of 2.5%. In the last 30 years, the compensation limit has increased 1.1% per year. In the last 25 years, the compensation limit has increased 2.48% (pretty close the the assumed). In the last 10 years, the compensation limit has increase 1.15% per year. It looks like they used the most optimistic number they could to increase the potential benefit.
1. For a pilot hired today, in 25 years they will earn $610K with historical upgrade selected in the modeler. With our current WB captain pay rate of $304.13 per hour and 3% yearly increases in pay rates, a WB captain should be making $636 per hour. Using the unions assumed 1000 credit hours a year, that would have the pilot making $636K their final year. Where did the other $26k go?
2. The modeler used an increase of IRS compensation limits of 2.5%. In the last 30 years, the compensation limit has increased 1.1% per year. In the last 25 years, the compensation limit has increased 2.48% (pretty close the the assumed). In the last 10 years, the compensation limit has increase 1.15% per year. It looks like they used the most optimistic number they could to increase the potential benefit.
05-22-2018, 06:50 PM
#46
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Joined APC: Jul 2007
Position: Gear Monkey
Posts: 3,191
Originally Posted by pinseeker
I think that you need yo look at this again. Yes, return was a poor choice of words, but the floor rate does guarantee an increase of 2% of future salaries if the hurdle rate isn't met. Also, the PBGC DOES require a rate of return for calculating whether your plan is properly funded or not. It's either 6.5% or 6.75%. I went with 6.5% because that is what Kronan stated.
We currently have a 2% guarantee on our A plan. We are limited to a salary cap of $260K. If the VB plan keeps that same rate of 2%, yet pays out more money even if the hurdle rate of 5% isn't met, how does the VB plan pay more money with just the floor rate if the company isn't required to contribute more money? If the VB plan is requiring the company to guarantee a 2% of salary per year of service in retirement, how is that different than increasing the A plan to IRS 401(a)(17) earnings limits?
Enjoy your lie flat seat and associated bank.
We currently have a 2% guarantee on our A plan. We are limited to a salary cap of $260K. If the VB plan keeps that same rate of 2%, yet pays out more money even if the hurdle rate of 5% isn't met, how does the VB plan pay more money with just the floor rate if the company isn't required to contribute more money? If the VB plan is requiring the company to guarantee a 2% of salary per year of service in retirement, how is that different than increasing the A plan to IRS 401(a)(17) earnings limits?
Enjoy your lie flat seat and associated bank.
The 2% floor benefit is an accrurial rate - actually similar to what we have now (but not exactly the same)
This rate is unrelated to the “hurdle rate” or the actual rate investments yield
The projected or assumed rate for the current A fund is 6.5%. If the actual return falls below that FedEx has the pony up more money to cover it
If it’s less, they get to contribute less
Under the VB plan they will only be responsible guaranteeing the accrued floor benefit, if we successfully negotiate such a gauruntee
However, it’s a great observation: Hey, don’t they already do that, so where is the savings for the company?
The answer, we are giving up the “High 5” method — so your guaranteed accrued benefit will grow more slowly and for anyone who’s not making the IRS limit from the start, their “career average earnings” will NEVER EVER equal the IRS limit of their final year
05-22-2018, 07:00 PM
#47
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Joined APC: Jul 2007
Position: Gear Monkey
Posts: 3,191
Originally Posted by pinseeker
Here's some more interesting info about the modeler.
1. For a pilot hired today, in 25 years they will earn $610K with historical upgrade selected in the modeler. With our current WB captain pay rate of $304.13 per hour and 3% yearly increases in pay rates, a WB captain should be making $636 per hour. Using the unions assumed 1000 credit hours a year, that would have the pilot making $636K their final year. Where did the other $26k go?
2. The modeler used an increase of IRS compensation limits of 2.5%. In the last 30 years, the compensation limit has increased 1.1% per year. In the last 25 years, the compensation limit has increased 2.48% (pretty close the the assumed). In the last 10 years, the compensation limit has increase 1.15% per year. It looks like they used the most optimistic number they could to increase the potential benefit.
1. For a pilot hired today, in 25 years they will earn $610K with historical upgrade selected in the modeler. With our current WB captain pay rate of $304.13 per hour and 3% yearly increases in pay rates, a WB captain should be making $636 per hour. Using the unions assumed 1000 credit hours a year, that would have the pilot making $636K their final year. Where did the other $26k go?
2. The modeler used an increase of IRS compensation limits of 2.5%. In the last 30 years, the compensation limit has increased 1.1% per year. In the last 25 years, the compensation limit has increased 2.48% (pretty close the the assumed). In the last 10 years, the compensation limit has increase 1.15% per year. It looks like they used the most optimistic number they could to increase the potential benefit.
Given the governments desire to reduce the rate of Social Security Benefit growth they have redefined how inflation is calculated, and slowed the rate SS Benefits have increased the past 5-10 years
Tying our Earnings Cap to the IRS 401 limits is not unreasonable, but not what many guys earning Wide Body Captains pay want to hear.
What amazes me is that we are willing to accept such a modest increase AND give up the High 5 method AND take on the investment risk
The VB plan only significantly advantages those who are willing to work 30 or 35 years.
They need those extra Years of Service to offset the slower/lower Accrued Benefit
05-22-2018, 08:45 PM
#48
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Joined APC: Aug 2006
Posts: 1,820
Originally Posted by DLax85
I believe you are confusing terms
The 2% floor benefit is an accrurial rate - actually similar to what we have now (but not exactly the same)
This rate is unrelated to the “hurdle rate” or the actual rate investments yield
The projected or assumed rate for the current A fund is 6.5%. If the actual return falls below that FedEx has the pony up more money to cover it
If it’s less, they get to contribute less
Under the VB plan they will only be responsible guaranteeing the accrued floor benefit, if we successfully negotiate such a gauruntee
However, it’s a great observation: Hey, don’t they already do that, so where is the savings for the company?
The answer, we are giving up the “High 5” method — so your guaranteed accrued benefit will grow more slowly and for anyone who’s not making the IRS limit from the start, their “career average earnings” will NEVER EVER equal the IRS limit of their final year
The 2% floor benefit is an accrurial rate - actually similar to what we have now (but not exactly the same)
This rate is unrelated to the “hurdle rate” or the actual rate investments yield
The projected or assumed rate for the current A fund is 6.5%. If the actual return falls below that FedEx has the pony up more money to cover it
If it’s less, they get to contribute less
Under the VB plan they will only be responsible guaranteeing the accrued floor benefit, if we successfully negotiate such a gauruntee
However, it’s a great observation: Hey, don’t they already do that, so where is the savings for the company?
The answer, we are giving up the “High 5” method — so your guaranteed accrued benefit will grow more slowly and for anyone who’s not making the IRS limit from the start, their “career average earnings” will NEVER EVER equal the IRS limit of their final year
My point is if you plug in the numbers for someone who gets hired today at age 35 and retires at age 60 with 25 years and a historic pay progression, the modeler shows a floor guarantee of $163k. That means the company is guaranteeing a pension of $163k a year for life regardless of how the market performs. Sort of like what our A plan does at $130k. Yet, the line on the sand was not to increase our A plan above $130k. So how is the union going to get the company to pony up the extra cash to guarantee $163k?
05-23-2018, 08:04 AM
#49
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Joined APC: Jul 2007
Position: Gear Monkey
Posts: 3,191
Originally Posted by pinseeker
Yeah, not doing a great job with using the proper terms and I agree that the 2% is an actual rate.
My point is if you plug in the numbers for someone who gets hired today at age 35 and retires at age 60 with 25 years and a historic pay progression, the modeler shows a floor guarantee of $163k. That means the company is guaranteeing a pension of $163k a year for life regardless of how the market performs. Sort of like what our A plan does at $130k. Yet, the line on the sand was not to increase our A plan above $130k. So how is the union going to get the company to pony up the extra cash to guarantee $163k?
My point is if you plug in the numbers for someone who gets hired today at age 35 and retires at age 60 with 25 years and a historic pay progression, the modeler shows a floor guarantee of $163k. That means the company is guaranteeing a pension of $163k a year for life regardless of how the market performs. Sort of like what our A plan does at $130k. Yet, the line on the sand was not to increase our A plan above $130k. So how is the union going to get the company to pony up the extra cash to guarantee $163k?
With that said, if you're #s are correct that shows a baseline improvement of just 25.4% over 25 years.
That's less than 1% per year
It reiterates my main points about the VB plan: The Career Average Earnings method will put new guys in a hole, that only above average market returns and working longer will pull them out of.
We need to hit pause. Analyze more critically. And look at all of our options.
05-23-2018, 10:14 AM
#50
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Joined APC: Oct 2006
Position: Midfield downwind
Posts: 1,919
So, is *anyone* seeing returns that are worth the potential risk of both the many aspects that would have to be negotiated and the risk of the fund being managed by an independent company?
The potential upside is what Chuck D said was the reason to look into it.
So far I'm neither seeing nor hearing about anyone for whom this model is showing such an up side.
The potential upside is what Chuck D said was the reason to look into it.
So far I'm neither seeing nor hearing about anyone for whom this model is showing such an up side.
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