As the industry struggles to survive, our union continues to look for ways to give away our A Plan. Truly unbelievable.

And our bright leaders like Kronan, FDXLAG, and Albie will be all over the new plan - as long as you have the option to work you a$$ off.

You think our ignorance with lie flat seats was a big surprise to us after signing CBA2015? Just wait for some real life-changing surprises once this new plan is voted in.

 

Traditionally at our company, FO's stayed in their seats long past the time they could have upgraded to Captain.

This allows more junior people to upgrade to Captain sooner.

If "every dollar counts", then expect a paradigm shift. More people will upgrade to the left seat at 100%, because their retirement depends on it.

This is another hidden ramification of the pancake plan.

It will take junior people longer before they can upgrade to Captain.

I'll bet you a stack of pancakes my prediction will come true.

 

To simply juxtapose this with the UPS/IPA flat dollar retirement that differentiates Ca and FO YOS amounts...

A fair number of pilots remain senior FOs for most their career, upgrade, fly to or just over the minimum revenue legs necessary to lock in the Captain FDA, then retire.

 

They are big and last a year or more because it’s a way for the company to plan for at least a year. In essence, it’s a two step bidding process when all others do internal planning and just put bids out as needed. One issue with our scheme is that you are locked into it until the next bid. If instead they just released bids every three months, then those who are certain at that time would bid. As it’s stands now, we have to plan a year or more in advance. It’s not the biggest issue but it is an issue.


Im trying to follow you here. I’m not sure I necessarily agree in your concept. The current A plan is calculated from your FAE with a cap of $260k. This new proposed plan wouldn’t have a cap. So wouldn’t it be a percentage of all pensionable earnings versus a capped earnings? In other words, won’t the pie be a lot bigger? It’s not the $260k pie being decided depending on career earnings. It’s actually a much much larger pie divided up. Do you know for certain that despite the larger pie, the pensions we would supposedly be competing with other pilots will be smaller if your only fly BLG?



Here is one other aspect I haven’t Hearn day one mention. If we tie total career earnings to our pension, wouldn’t that put downward pressure on our pay rates? Right now, obviously management wants to keep pay rates as low as possible. But when you also tie that into a total career earning pension scheme, won’t they make it more difficult for us to negotiate higher pay rates each contract cycle?


Doesn’t inflation decrease the value over time? What do you mean when you say that it does not mean it’s present value has not increased?

 

Am I sure? Of course not. This is the most complicated retirement proposal ever attempted. They have at least 6 podcasts and multiple video messages all trying to explain a program to a large group of reasonably smart professionals. Since we still are having trouble getting our hands around it, this really only re-emphasizes how complicated this is. This plan was designed by Blitzstein to be something that the rank and file would never understand and he could "manage" the program however he wanted. Now he's having to try and explain it to a group of smart folks and it does not make sense to us. There's no Fidelity Rep helping to explain this, no Vanguard rep trying to sell their company as the manager of this program; this is a one-off special order program that non of the big financial management companies want anything to do with. Why do we?

But, excluding that here we are a bunch of pilots trying to implement the most complicated program ever designed that no one else in the world has ever done and hoping we are correct. All the descriptions of the plan are about Variable Benefits, meaning that your benefits vary based upon your earnings. If all we were doing was having a flat percentage of our earning deposited into a large "joint" account which was actively managed and then we received payouts from that pool based on the annual rate of return, I think we could all figure that out. That is NOT what this is. We split the "pie" amongst all the pilots based upon their individual earnings for that year as a percentage of total earning. Feel free to play stump the ALPA rep the next time they try to spin this and you're around. Ask them if you earn 100k every year for the next 10 years will your pancakes be the same every year? After the tap-dancing (mostly because none of them really understand the plan either), the answer will be, it depends. If it was a flay percentage of your earnings, it would not depend. It depends on what everyone else makes. That's why so much time is always spent showing you how the pancakes grow and that your end withdrawals will be soooo much higher. The bedrock of the program is built on smoke and mirrors. This is like getting an Amway pitch from your buddy in the squadron. "See when you reach Diamond status the returns start rolling in" In fact, that's my new name for this program.....this is the FDX Amway style variable retirement plan...Hmm I think I can do better. I'll keep thinking. Maybe the FDX Amway Retirement Theory...FART! Our great big FART.

 

I like that, the FART plan.

So, when you FART, do pancakes come out?

But, we still don't know how many pancakes per FART?

And we still don't know how much a pancake is worth until the final FART?

 

FXLax -

In economic/financial modeling one can use nominal values (not adjusted for inflation) or real values (adjusted for inflation).

While adjusting for inflation is a more precise modeling method, it's also more complicated because it's another value one must estimate/assume, and is open for debate. Inflation in the 1970s was far different than the 1980s...which was different than the 1990s...or early 2000s...which is different than today & forecast.

US monetary policy, set by the Federal Reserve, also shifts with regards to inflation and unemployment. The Fed has recently shifted their views and policies regarding inflation, and I don't believe anyone knows what inflation will be for the next 10, 20 or 30 years. So with that said, introducing inflation into the model is another variable and another risk.

Given that, one can still build a nominal model - but such a model is affected by the discount rate used. Regardless of inflation, the discount rate (i) reduces the value of a current payout N years. Net Present Value of Payout in Year N = Payout times 1/(1+i)^N. Add up all future, discounted payouts and you will obtain the overall Net Present Value of any stream of payouts.

As the discount rate increases the value of future payouts decrease....and the total Net Present Value decreases

As the discount rate decreases the value of future payouts increase...and the total Net Present Value increases

So what discount rate should a pension fund use?

That's hotly debated by not only private pensions, but public pensions as well. If you do a simple Google Search you will see many articles. You can even research the discount rate used by the Fedex Plan. 3 Years ago, I did a lot of research on the Fedex Plan using financial reports in a university library.

The weighted discount rates used by our plan have steadily fallen from the 7.9%-8.5% range (1996-2000) to 7.7%-6.3% range (2001-2010)...to the 5.7%-4.0% range (2011-2017).

I have not updated my research for 2018 & 2019....sorry, I've been off doing "other things". I have the specific data on each year, but it's too much too type

So, while our $130,000 max payout has remained constant..... the Net Present Value (unadjusted for inflation) has Increased.

To my other point, the current Fedex A plan EROA (Expected Return on Assets) has also decreased (...which, from the Fund manager's perspective, makes it harder to fund the A Plan)

Those ranges are: 9.3%-10.9% (1996-2000).....10.9%-9.1% (2001-2007)....8.5%-8.0% (2008-2013)....and 7.75%-6.5% (2014-2017). Once again, I have each year but it's too much to type.

In combination, this decrease in the Discount Rate....and the decrease in the Expected Return on Assets....has put a greater burden on the company to fund the A plan. A burden that would shift to the pilots under the Variable Benefit Plan (...No thanks! The company can keep that promise, that responsibility and that burden!)

In my research, I was also able to obtain the AROA (Actual Return on Assets) for each year of the plan. Any year the AROA was greater than the EROA was a GOOD year for the plan. Any year the AROA was less than the EROA was a BAD year for the plan.

It's interesting to me that the VBB Modelor doesn't actually use the known AROA from our A Plan....rather it uses some weighted asset allocation of two other historical indexes: The S&P 500 Index and the Barclays US Aggregate Bond Index (...previously known as the Lehman US Aggregate Bond Index).

Why not? Why assume Fedex Fund managers would have performed liked the idexes? Why not look at their actual historical performance?

How would the modeler results be different if actual Fedex AROA returns were used?

In Unity,
DLax

 

P.S.

"All Models are Wrong, But Some are Useful" George E.P. Box

I'm not confident the VBB Modeler was/is Useful.

In Unity,
DLax

 

It’s even less useful when you question the union about it and they say the modeler is wrong because “you’ll actually make more than it shows”....true quote.

Sure. No thanks

 

Back when this whole VBP-whatever you want to call it-was announced, I was deadheading and just happened to be seated next to a corporate retirement advisor. She helps companies get out of pension plans. I asked her about this new program the Union was promoting and she said “You never give up a defined benefit pension”. She thought we were crazy for considering it.