Death of the DB retirement (A plan)
#1
Death of the DB retirement (A plan)
Just a couple of thoughts regarding retirement at Fedex, assuming we go forward with C2015. My math is all on a napkin, lots of assumptions, some based on my personal situation but I would assume it it may hold true for most. Please feel free to counter my math with better numbers.
Looking over my past three tax returns, I've found that my W-2, line 1 wages equal between 98% and 107% of my hourly rate x 1000. My guess is many Fedex pilots exceed my high years precentages and will more so once they feel more comfortable exercising their prerogatives regarding open time pickup, draft, VAC sell/buy back, and protecting C/O.
Our current WB Capt rate is just over $262 per hour and the current (and not changing) DB limit for computing max benefit is 260K, very close to the 1000 credit hour limit which I'm using to (roughly) compute this benefit. Based on current payrates and (in my case) actual earnings, If I was 60 and if I retired today, I would get the full or almost full benefit from the A plan, roughly $130,000 less any actuarial adjustment for spousal considerations after my death. My "B" plan money would be there to top up my benefit to the 70% replacement income that ALPA has (in the past) used as a benchmark for pilot retirement funding.
We all assumed and hoped that our negotiating committee would get Fedex to up the 260K limit on figuring the benefit, hopefully keeping up (if not exceeding) the hourly rate x 1000, preferably by much more. Based on the published hourly rates over the next 6 years, a WB Capt earning just 105% of their hourly rate X 1000 would have a W-2 line 1 income of over 352K. Seems good, especially if you discard inflation considerations, but this is a discussion of pension income.
Retiring in 2020 with the last payrate, you can expect to earn $130,000 (less spouse adjustment) just like a Fedex pilot did in 2006 when it was last adjusted. The difference is, a pilot in 2006 worked his butt off to make 260K to get the max DB limit, in 2020 the retireing (captain) will be earning considerably more, get the same $130,000, living (on average) 14 years longer than his 2006 retiree counterpart, and the value of the dollar will have shrank due to the usual inflationary reasons.
So that means the "B" plan part of the retirement (meant to help bolster the 50% benefit to something like 70%) now become much more important, way more important, if you assume that the DB "A" plan never does increase from the 260K cap that has been in place for almost 10 years. Again, using my napkin math, assuming a life span of 30 years after retirement, earning 350K in your final year, and wishing to have 70% of that (with no adjustment for inflation, just a flat income) you will need 3.45 million over and beyond the fix income you will receive from Fedex. (the math-- 350K x .7 = 245K - 130K = 115K x 30yrs = 3.45 million). Note, didn't figure the spousal adjustment to the 130K DB, only because i don't know it!!
Of course you know we got a bump to the "B" plan money, 1% increase right away and another at the 5 year point. If you are at the top of the pay scale you will gross about $3000 more per year as we go from 7 to 8%, on the companies contribution. More later as the pay rate goes up, but basically something less than $4000 for the next bump. All this while the DB plan remains static and inflation eats into in value.
Could go on about this loss. But I think you get the point. I'm sure someone will step in and show how the new SCK buy back and bonus for declaring your end of the year retirement will help off set these losses. I look forward to the spin.
Looking over my past three tax returns, I've found that my W-2, line 1 wages equal between 98% and 107% of my hourly rate x 1000. My guess is many Fedex pilots exceed my high years precentages and will more so once they feel more comfortable exercising their prerogatives regarding open time pickup, draft, VAC sell/buy back, and protecting C/O.
Our current WB Capt rate is just over $262 per hour and the current (and not changing) DB limit for computing max benefit is 260K, very close to the 1000 credit hour limit which I'm using to (roughly) compute this benefit. Based on current payrates and (in my case) actual earnings, If I was 60 and if I retired today, I would get the full or almost full benefit from the A plan, roughly $130,000 less any actuarial adjustment for spousal considerations after my death. My "B" plan money would be there to top up my benefit to the 70% replacement income that ALPA has (in the past) used as a benchmark for pilot retirement funding.
We all assumed and hoped that our negotiating committee would get Fedex to up the 260K limit on figuring the benefit, hopefully keeping up (if not exceeding) the hourly rate x 1000, preferably by much more. Based on the published hourly rates over the next 6 years, a WB Capt earning just 105% of their hourly rate X 1000 would have a W-2 line 1 income of over 352K. Seems good, especially if you discard inflation considerations, but this is a discussion of pension income.
Retiring in 2020 with the last payrate, you can expect to earn $130,000 (less spouse adjustment) just like a Fedex pilot did in 2006 when it was last adjusted. The difference is, a pilot in 2006 worked his butt off to make 260K to get the max DB limit, in 2020 the retireing (captain) will be earning considerably more, get the same $130,000, living (on average) 14 years longer than his 2006 retiree counterpart, and the value of the dollar will have shrank due to the usual inflationary reasons.
So that means the "B" plan part of the retirement (meant to help bolster the 50% benefit to something like 70%) now become much more important, way more important, if you assume that the DB "A" plan never does increase from the 260K cap that has been in place for almost 10 years. Again, using my napkin math, assuming a life span of 30 years after retirement, earning 350K in your final year, and wishing to have 70% of that (with no adjustment for inflation, just a flat income) you will need 3.45 million over and beyond the fix income you will receive from Fedex. (the math-- 350K x .7 = 245K - 130K = 115K x 30yrs = 3.45 million). Note, didn't figure the spousal adjustment to the 130K DB, only because i don't know it!!
Of course you know we got a bump to the "B" plan money, 1% increase right away and another at the 5 year point. If you are at the top of the pay scale you will gross about $3000 more per year as we go from 7 to 8%, on the companies contribution. More later as the pay rate goes up, but basically something less than $4000 for the next bump. All this while the DB plan remains static and inflation eats into in value.
Could go on about this loss. But I think you get the point. I'm sure someone will step in and show how the new SCK buy back and bonus for declaring your end of the year retirement will help off set these losses. I look forward to the spin.
#2
Gets Weekends Off
Joined APC: Nov 2006
Position: 767 FO
Posts: 8,047
And don't forget your b plan contributions are capped. It sucks but I for one believe ALPA when they say A Plan fix would cost four dollars for every dollar added to the payout. We are better off going for a cash over cap b fund type of gain.
#3
Line Holder
Joined APC: Jun 2006
Position: MD11 F/O
Posts: 47
I am certainly not drinking the kook-aid, but in light of your comment I went back and looked at the statement made on PFC last November about the company offering a 16.5% over the cap limit B fund up to $360K in exchange for freezing the A plan. Under that arrangement, for WB capts maxing out the plan would be worth $59,400/yr. Something to consider for those of us moving up the ranks.
#4
Gets Weekends Off
Joined APC: Jul 2006
Posts: 498
A plan: the company pays more during the life of your employment to build a balance that will be drawn down over the life expectancy. B Plan: here's some money, hope it works out for you.
By the way, unless you get a 15% plus return every year, you cannot get close to even the current non-CPI adjusted A fund lifetime payment.
#5
Gets Weekends Off
Joined APC: Aug 2015
Posts: 180
^^^^^^^^^^^ Hate to rain on the parade, but the numbers aren't close when comparing a 2%A / 9%B to say an 18% B Fund. You would need some sort of insane return as mentioned above. I know we were all looking forward to an increased cap, but, what we have now is far far better...in my opinion. And yes, i get it, the value diminishes over time.
#6
Line Holder
Joined APC: Sep 2015
Posts: 26
I disagree. It wouldn't require anything near a 15% return on you B fund to come out ahead. l would completely agree with you if the A plan had any type of inflation adjustment, but it is now obvious it never will. An 18% B fund with cash above the cap (or no cap at all) would exceed the A plan. The money would be yours to do with what you want, and leave the leftovers to whoever you want. The younger pilots need to wake up and see how we are being taken on this issue.
#7
I disagree. It wouldn't require anything near a 15% return on you B fund to come out ahead. l would completely agree with you if the A plan had any type of inflation adjustment, but it is now obvious it never will. An 18% B fund with cash above the cap (or no cap at all) would exceed the A plan. The money would be yours to do with what you want, and leave the leftovers to whoever you want. The younger pilots need to wake up and see how we are being taken on this issue.
#8
say "Bye Bye" to 70% retirement income
The bottom line: If your junior, your retirement has/will be going from a Caddy of the industry, to (in 25+ yrs) a used Yugo, maybe not that bad if you never get sick, take advantage of all the sick payout provisions, take big chances/risks while investing your "B" funds, and work until your 65th birthday. Welcome to the "New" Fedex, PSP for the 21st century.
#9
Line Holder
Joined APC: Sep 2015
Posts: 26
I just quickly created a spreadsheet to show the value of an 18% B fund over a 30 year career. I have yet to triple check the math (disclaimer). I've tried to use conservative estimates.
Based on averaging the following incomes with no cap on contributions:
Years 1-4 $100k, years 5-8 $200k, years 9-12 $250k, years 13-16 $300k, years 16+ $350k.
Averaging a 6% return you would have about $3.6 million after 30 years.
8% return would leave you with $4.9 million
3% return would leave you with $2.3 million.
My goal is to just start a discussion on this subject. The writing is on the wall. My first goal would be an inflation adjusted A fund, but I just don't see it happening. We've already seen the company's first offer on this subject. I think we could find a way to transition to this type of plan that would be fair for EVERY pilot on the property.
In my own situation, I think the A fund will be worth around $70k/year in present day dollars when I hit 65. The small B fund increases in the TA do not come close to replacing the $60k/year in lost purchasing power and are the biggest reasons I will be voting no.
Based on averaging the following incomes with no cap on contributions:
Years 1-4 $100k, years 5-8 $200k, years 9-12 $250k, years 13-16 $300k, years 16+ $350k.
Averaging a 6% return you would have about $3.6 million after 30 years.
8% return would leave you with $4.9 million
3% return would leave you with $2.3 million.
My goal is to just start a discussion on this subject. The writing is on the wall. My first goal would be an inflation adjusted A fund, but I just don't see it happening. We've already seen the company's first offer on this subject. I think we could find a way to transition to this type of plan that would be fair for EVERY pilot on the property.
In my own situation, I think the A fund will be worth around $70k/year in present day dollars when I hit 65. The small B fund increases in the TA do not come close to replacing the $60k/year in lost purchasing power and are the biggest reasons I will be voting no.
#10
Gets Weekends Off
Joined APC: Nov 2006
Position: 767 FO
Posts: 8,047
Of course it costs more that dollar for dollar to increase the A fund number. It's a lifetime benefit vs a yearly benefit. The A fund amount must be more per year now so the value will last into your retirement. That's the whole problem with the B Plan "fix". You cannot get enough money into the B fund to provide retirement payout equivalent to an A plan.
A plan: the company pays more during the life of your employment to build a balance that will be drawn down over the life expectancy. B Plan: here's some money, hope it works out for you.
By the way, unless you get a 15% plus return every year, you cannot get close to even the current non-CPI adjusted A fund lifetime payment.
A plan: the company pays more during the life of your employment to build a balance that will be drawn down over the life expectancy. B Plan: here's some money, hope it works out for you.
By the way, unless you get a 15% plus return every year, you cannot get close to even the current non-CPI adjusted A fund lifetime payment.
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01-18-2017 07:53 PM