[outsider alert, outsider alert]

Why talk about voluntarily ending the defined benefit?

Why not improve the defined benefit AND defined contribution, so that people at every end of the age/career spectrum can benefit? Yeah doing so may not be as big a DB bump as some older people want, or provide as large a DC bump as some younger people want, but having something for everybody in Retirement might earn YES votes without further fracturing the group into perceived winners and losers.

Obviously FDX pilots are going to vote in their interest, and I completely support FDX pilots getting a new TA that you've 1. earned and 2. deserves a YES vote.

[end outsider alert]

 

Ding ding ding, we have a winner!!!!

Too many people have bought into this notion that the DB plan is too expensive. That simply isn't true. The only additional cost is the PBGC insurance premium, which is peanuts. The amount to fund the DB plan is simply the amount of money required to meet the obligations. The same amount of money would be rquired in a DC plan. What the company doesn't like is the uncertainty of rate of return and longevity. That is hard to predict. They want us to take on all of the risk.

 

Yes, we need a retirment solution that has something for everyone. And thankfully the NC seems to be trying to do this as well. Unfortunately, retirement is just ONE item. The retirement scheme needs to cater to differing age groups but other parts of the contract also have differeing amount of interest depending on pilot demographic, namely scope. So its not as "easy" as making retirment right, its that plus scope, and compensation, and work rules, and lenght of contract. And for one demographic or another, one of those items outweighs all others. So the "simple" solution is to improve something for everyone.

 

This is exactly what we need to be bargaining for.........Modest improvements to both the Pension and DC plan with a Cash Over Cap. Small bump in the Pension for the senior crowd and raise the DC to align w/ and exceed our peers (UPS). Get us up to thier 12% and have it increase throughout the duration of the contract. All segments of the seniority list benefit.

 

Absolutely not!!!! Modest improvements?? NO! Small pension bump for the senior crowd and a 33% bump in the DC plan. Heck no!! Pension bump higher than TA1 along with an increase in DC plan, just like the NC put out in their message.

Are we going to support our current NC?

 

Seeing as the failed TA FAE cap was $338k, which is a 30% bump, and the new NC update said their ask is above the previous TA value along with recognizing LOS, a 33% bump on DC plan (with CoC) doesn't seem unreasonable. I guess it depends on one's definition of modest. But I would think that modest would not mean less than what the previous TA had?

 

Modest moves to 38.6% in January. And that is only on sections (pay rates) that we were in the ballpark on in 2015. Many other sections are at a far greater disparity than 38.6%.

 

People are overestimatimating the leverage they have with "cashing out" the pensions, and that's due mostly to the "collective wisdom" over the past decade.

The most important thing to know that is that "pension funding" is a magical number that is calculated, but it has absolutely nothing to do with how much money is in the pension dividied up amongst the participants. Yes, how much money in the pot is a variable in the equation, but not the primary driver of how well funded the pension is or is not. That number is driven mostly by the long term interest rates. Why is this important? Because ERISA funding rules take a snapshot of that rate every year, and that is the assumed growth for the plan.

The only thing "market driven" that affects this calculation is indirect. When they look at the balance of the pension fund, it's a fixed number that they use for the look forward. The plan itself could have returned 5, 10, 15 or even 50% the year before, but all that matters is the money in the pot when the snapshot is taken. The real driver of the funding calcuation is the look forward interest rate. That number gets used, and the actuarial analysis done with the expected draw from the participants. As you would expect, since this is a compunding number, very small changes can cause a wild swing in the "funding level".

Since the crash of 2008, the economy has been on a sort of life support with a very long period of extremely low inerest rates...sometimes approaching zero. When you are cacluating that out 30 years, your funding requirements for the pension can be very, very large. But the actual funds themselves almost always perform better than that.

Typically, when interest rates are low, that means the economy sucks, and the pension funds don't return much because the whole market is trashed. But we've been in this weird negative universe for the past 15 years where the economy has been going gangbusters, the market (and thus the funds) have been doing very well, but the interest rate has remained near zero, thus still driving funding requirements because the "look ahead return" has only been 1%.

That sets us up to where we are today. The funds have actually been doing very well. Interest rates are back to a historical average, and they actually snapped up fairly rapidly. What does that mean to the funds? That means that they went from funded, or even underfunded (requiring companies to contribute money to the fund), to overfunded, and sometimes WAY overfunded.

A mature DB fund, with "average" returns, and "average" interest rates are essentially self-funding. They fund themselves because the returns from the plan are greater than what is required. Aside from the plan administration, there is zero cost to the company. Back when a DC contrubution or a 401k match, it was a relatively paltry amount. These days, in the world of 15-18% DC contributions, that represents REAL money every two weeks that companies have to stroke the check. Going from a well funded DB to DC contributions, in this envrionment, is going to be expensive.

As Sailing said, you can voluntarily terminate a plan, but you have to purchase an annuity for each and every participant of the plan for their accrued benefit. That costs money, and so the threshold to terminate the plan is higher than 100% funded. Usually along the lines of 110-115%.

So, the ironic part: With the increase in interest rates, some plans have become very overfunded. On plans that are frozen, management can't simply skim the money out of the fund. Frozen plan means assets are frozen as well, which means a LOT of money is locked up that they can't get their grubby mitts on. The only way for them to do that is to unfreeze the pension, which means participants start accruing benefits again.

 

Pension causes perpetual old vs young division, it creates a group of single issue yes voters, and it builds massive bargaining hurdles to pay scales, QOL, and scope. That's why it needs to go.

 

It's not an old vs young, it's an experienced vs optimistic view. If you ask the "old" guys now, most of them wanted an increased B fund when they were young also. But with time and stock investing experience, we have come to eternalize the concept of diverse retirement options. In my investing lifetime, I've seen three 40%+ drops in the stock market. Plus the lost decade of the 2000s. It will happen again. You will lose half your retirement value at some time if you are invested in equities. An A plan is not bullet proof, but it certainly provides a separate leg for your retirement plan to stand on. The second aspect of an A plan that is not discussed is sick/injured/family care/etc. Feel free to check out your new hire class, if you've been here over 10 years, then 10% of them are out right now with some form of long term or permanent issues. That number will rise to 20% at the 20 year point. It could be any of us, isn't it nice to have a plan that covers lost income years if you need it. A good A plan solves the issue of "will I live in a van down by the river" at age 60. It at least covers a double wide in MS.

Ask the old guys why they think a bigger A plan is best and then interpolate that forward in your own life.


[size=0pt]It's not an old vs young, it's an experienced vs optimistic. [/size]