BoilerUP

Taking it personally? Absolutely not - that should be crystal clear over my multitude of posts in this thread.

You and I are coming to different conclusions after considering the same information, and that's totally fine.

You think I believe "next time will be different", and I think you're not willing to understand how things *are* different. That's a different perspective, not taking anything personally.

I hope you're satisfied with your DC retirement - I'm satisfied with my DB/DC retirement. May we both improve ours over subsequent contracts, then compare their relative value upon retirement over scotch and a good filet.

NuGuy

The problem is that in this fiscal environment, annuities are wickedly expensive unless they are already well funded and run by fund managers that know WTF they're doing. As long as funding requirements are linked to interest rates, they'll continue to be so.

If we can get back to a "normal" economic environment with 4-6% interest rates, then the picture changes.

Gone Flying

Just a reminder, boiler has on numerous occasions pointed out the limits of the PBGC. Many of his/her assumptions are not predicated on the full amount but on the amount the PBGC guarantees. Remember when airline pilots say their pension was “stolen” they are saying it was either frozen at a fixed value or transferred to the PBGC at some reduced rate. that is the rate Boiler is using, not the full promised value. Kinda like if you have $500,00 in the bank it is safe to assume you will always have at least $250,000 even if the bank disappears because that is what FDIC guarantees.

both DB and DC plans have their risks, but the PBGC has picked up the slack with airline pension terminations in the past, it is not saying “this time will be different” to assume they would continue to do so.

Gone Flying

low interest rates help chronic spenders and hurt savers, the government, who has a direct say in monetary policy, is the biggest chronic spender out there. current monetary policy aimed at keeping interest rates low to make our debt payable will be the enemy of many DB plans

Gone Flying

I think it is worth pointing out, the only airline “tactical” BK since the rules changed that I’m aware of was AA in 2011. In that case the pilot’s (and all other workers) pension was frozen because the judge would not let them terminate it and entirely new (external) management was able to take over. Part of the rule changes gave more of the power to debtors and took it away from management. It is extremely risky for any management to enter CH 11 as they have very little say compared to before the 2006 rules change. The people who own the debt are in charge, not management. Also given most CEOs are compensated significantly in stock, it would also be a huge personal financial loss as BK destroys the stock value and in most cases the stock ends up being close to worthless.

FXLAX

Again, we are talking about airlines that have only a DC plan versus ones that have both a DC plan and a pension. A fact you conveniently ignore. That is not a personal attack. A personal attack is saying something against your character. I’m pointing out that in your argument, you ignore important facts, making it weak.

The two separate retirement vehicles have two sets of risks. I’ll spell them out again for you.

A defined contribution plan have these risks:

Bankruptcy: possibility of contributions being cancelled, mitigated by vested amount already in a 401k

Act of congress: contribution limit reducing amount participant or employer can contribute; compensation limit may restricting the amount of contributions

Inflation: erodes the value over time

Interest rate: rate fluctuation

is assumed by participants both

pre- and post-retirement; low interest rate environment may dampen the overall investment return on plan assets

Investment: risk of investment loss

Longevity: living longer than your retirement funds



A define benefit plan have these risks:

Bankruptcy: frozen or transferred; mitigated by the Bankruptcy Protection Act and the PBGC; currently pays about $72k per year until death

Act of congress: law repealing employee pension protections

Inflation: erodes the value over time

Interest rate: same as above but borne by the employer

Investment risk: same as above but borne by the employer

Longevity: same as above but borne by the employer


If you believe in spreading your risk, you can see that having both is a viable strategy to accomplish that. This depends on your risk aversion to each of the risks inherent to each plan. The employer is completely responsible for interest, investment, and longevity risks in defined benefit plan. Conversely, inflation, interest, investment, and longevity risks, are completely borne by the participant in a DC plan. Of course you mitigate those risks in a DC only plan by investing correctly until you die. Many have professionals they pay or that take a cut of the earnings to help make the right decisions over your entire lifetime. If you have both, since certain risks are borne by the employer in a pension plan, that allows that pilot to make shift his risk assessment in his DC plan to help him mitigate the risks inherent with that and maybe capture higher returns on those investments knowing he has another source of income.

FXLAX

So you feel that FDX and UPS will be fine. No need to get to your second point, that next time will be different, then.

So seeing as that you think FDX and UPS will continue having a viable pension, which is better? An airline with only a DC plan or one with both?

Kind of a side note, do you think that it will be easier for airlines to increase their DC plan contributions in each bargaining cycle or to negotiate a new pension for those that no longer have one? Because FDX and UPS have both negotiated increase to their DC contributions but none of the other dozen airlines have negotiated a new pension. I know where my bet would be when wagering on improvements.

Profane Kahuna

That’s a false equivalecency since the companies don’t pay as much as the other leading airlines into pilot’s DC funds.

But if they did, the equally funded DC + a pension would pay out more and as I have said previously FedEx and UPS pilots will probably be the richest ballers in the old pilots retirement home (even without the higher DC contribution).

I hope bankruptcy never comes to pass for any airline but history says pilots get screwed. In that eventuality I would take a DC only plan everyday of the week because you don’t have the risk of reduced income for decades.

Since no one can guarantee an absence of bankruptcy for 60+ years I vote the best retirement plan is the company with the highest DC contributions.

FXLAX

Either you think they will have a viable pension, as YOU stated, or you think they will be transferred to the PBGC in the next 60 years. Can’t have it both ways.

And like also mentioned, bankruptcy is also a risk to DC plans as well. Your DC plan can be terminated and left with what you have vested.

Lastly, it all comes down to risk aversion. You don’t have much for the FDX or UPS pensions. That’s ok.

Profane Kahuna

In a RETIREMENT discussion where pensions are concerned the pilot’s need to realize the money will only be there if the airline does not declare bankruptcy for the full length of their employment PLUS the decades they expect to live after retirement through their death, and then any years after if there are spousal benefits. That is a long time, the risk is not zero no matter how proud you are of your company.

This is a thread about retirement plans. You keep bringing up bankruptcy for those still in their working years. Every employee everywhere faces that risk from McDonalds to Delta. It is real but irrelevant. If you wish to discuss the comparative risk that each airline might not even last the full length of a pilot’s employment you are free to start another thread “which major airline will declare bankruptcy first?”

Bankruptcy has zero risk for a retired pilot with a DC only plan. The money is already in their account and creditors can’t touch it, the money can’t be bargained away by the union, and the PBGC can’t offer pennies on the dollar and claim they “saved” the pension.

It’s OK if you believe that “the next bankruptcy will be different”.... I don’t. The pilots always get screwed.