401k's instead of pensions
 

I posted this in another forum but I wanted to get a thread started here and see what you guys think? No yelling at each other that gets us nowhere. Lets just get some solid discussion going.

All the airlines need to switch to 401k plans. That way the money is in the bank and we are not funding guys pensions who retired 10 years ago today, when they should have been funded 10 years ago while he was working. This would solve so many problems. They can be rolled over from your first regional job on up the chain so each employeer you have in your career helps carry the burden instead of just your last place of work.

Not to metion that US Airways is retireing 50% of its pilots in the next 10 years. No wonder they have labor cost issues they are paying 50% of their pilots probably pretty close to 12yr pay in thier aircraft. Just a thought. I know it would be a nightmare to switch over now but sometimes the hard thing to do is the right thing. Even if it was a half-half switch giving the younger guys the 401k, that way the next generation of pilots won't carry our load??

I've always been one who thrived on being self reliant. Therefore, I'm thrilled that the company doesn't have a dime of MY retirement funds. It's all MINE! Even the profit sharing is already paid to an account that is MINE and not just a part of a separate account held by the company just to make the balance sheet look better.

Best of all, I have the freedom to tell the company to take a hike whenever I want. If I don't like working there any more, I collect my funds, roll them over to wherever I want, and go about my life without looking back.

Granted, my parents didn't work in unionized pension-reliant positions so I never had the mindset that a company owed me anything other than a paycheck for work performed. Your attitudes may vary.

I know you are serious, but I have to say that your idea is bad, bad, bad. What you are proposing is tacit approval of one of the biggest rip-offs in history. That is a rip-off of the pilots of USAirwys and United with other groups to follow.

The USAirways pilots pension fund had $1.7 Billion in it when the PBGC took it over. Yes, it was technically underfunded at the point the plan was terminated. That was at the stock market nadir. Contributions into the fund were being made at the legislated rate prior to the events of 9-11 and the stock market crash, but that legislation and the computation of returns was overly optimistic.

Stephen Wolf and his cronies spent over $1 Billion re-purchasing stock in USAirways to prop up the stock price during the time that they could have been using that cash to properly fund the pension with realistic rates of return or otherwise saving the cash for a rainy day. They did this because they were corporate raiders who were simply playing a game to enrich themsleves. When USAirways went bankrupt I lost my pension while Stephen Wolf and his gang walked away with over $50 million in cash.

The PBGC was deliriously happy to terminate the USAirways pilots pension fund because they knew that $1.7 Billion in assets would go a long way to helping them shore up their sick balance sheet and they propbably knew, as any smart investor did, that the stock market crash was only temporary.

You advocate telling these criminals that it is okay to treat labor like crap and steal from them just so you can buy a bigger villa in Palm Beach. Hey, it's a great idea to be self-sufficient, don't get me wrong. I have four plans for retirement and only need one to pay off, but the loss of the USairways pension hurt and it wasn't necessary. It also isn't necessary for United, Delta, or NWA to lose their pensions. Companies need to honor their promises and obligations and the CEOs of these companies need to be held personally responsible when they rip off their employees.

Your idea makes me sick :mad:


TP

wow thats not what im saying at all. Im saying the system needs changing. Obviously the pensions type system does not work. Im not debating what the managment did right or wrong with usairways and united. In fact if you go back and read my post I beilive it says that we need to do some sort of gradual change. The older guys can stay on the pensions and the younger guys move to a 401k system.

I dont know if you are informed or not of 401k's but the company will match your contributions up to a certain percentage of your paycheck and the money goes into an acount you control not one the company controls. This even goes towards your argument because then the management can't screw you and pull your retirement. The money is yours.

I am in no way supporting what USAirways and United did to thier employees they need to pay thier employees what they promised but obviously the program does not work. We need alternatives and this way we have control over our own destiny. What happens when companies liquidate and dont even exist any more where are your pensions. With goverment tax payers? After all this is America(or it used to be) where people had freedoms and with freedoms come great responsiblility, I don't want the company in control of my retirement. Pensions just dont work.

Okay, fair enough. This topic gets me a little agitated because I personally lost a lot of money as a result of the pension termination. Sorry if I jumped to the wrong conclusion.

401Ks in and of themselves are not really a good investment vehicle and most people don't a clue how to invest properly, especially airline pilots. To give them control of their money, in most cases, means they will invest it poorly and not have enough to retire on. The nice thing about pensions was that individuals didn't get a say in their investment, but they knew what they would have at retirement based on their years of service and final average earnings. It isn't too much to ask a company to provide for someone who has been loyal to them for 30 years. That is not an entitlement mentality either, it is just a point of view based on honor, loyalty, and integrity.

When you add company matching to a 401K it becomes slightly more attractive, but the individual will still find a way to lose most of their money by taking too much risk. The far better method to resolve this crisis is to move to a European style of regulation where pensions are concerned.

When I fist came overseas again after 9-11 and was telling people how my pension had been terminated they were incredulous. They couldn't understand how that could happen because with the rules in their country it would not have been possible. Companies are forced by law to keep the pensions funded enough to cover all obligations. That is what is necessary in the USA, not a downgrading of retirement to a pure 401K system.


TP

This is another one of your insightful responses. I couldn't agree more. If you take the pensions we were promised and "convert" them to a 401k match, the obligation to the airlines would be a hell of a lot more than a wimpy 5% match. The 401k match contributions in place at the airlines in the U.S. today don't even come close to what they would have to contribute if they were to match the pensions we were promised but robbed of! I am no accountant but in order to match a pension benefit plan such as the ones that were in place at USAirways and United a 20%+ employer contribution would be required. You will not see that happening ever! The 401k is just a huge scam to make you think that you are "getting" a retirement from your airline. Believe me, a 401k plan is better for the employer than the employee.

Any serious replacement of the defined benefit plans would have to be at least close in monetary value to the "old" defined benefit plans, and no airline is even getting close to that yet.

Well you guys may have me here with the percentages. But I think we all agree that the current system is abosolutly worthless. Promises mean nothing. I want money in a bank with no smoke and mirrors. Current pensions are funded with todays profits to pay for guys who retired earlier. And the next generation of pilots after me will have to pay for mine and that just doesnt work. So something needs to be done. Wheter that be pensions in a difeerent form then they are today something needs to be changed.

Of course, we all want control of our pension funds, but you must remember that the 401k plans were not around when the Legacy carriers established their defined benefit plans, and back in those days a promise of a pension was a promise that would not be broken, period! How times change!

We obviously have to try and change the retirement funding so it can't be held in the possession of the airline itself, that doesn't work. The airline pilot generations past gave up pay and other benefits in order to secure their retirement. We need to try and salvage a pension for these guys in some form and then try to find a decent replacement value for company matching beyond the wimpy single-digit company contributions currently in place at the airlines today. Also, this company contribution should not be an employee match deal, but rather a contribution regardless of whether the employee contributes or not.

Pension's
 

The cover of Time Magazine has a great article worth reviewing. I know that many of us are frustrated as we have seen our airlines and our careers sink to new lows. The corporate raiders taking away our pensions and dignity. It isn't just happening to the airline industry, it is currently happening to the others. 401k's aren't safe, and won't add up to the pension that you would need under the meager amounts that we can provide, for many, unless you were 2 when you started investing.

The defined contribution plan was negotiated to act as a stop-gap to lessen the impact of an age 60 retirement and the penalty that early withdrawal of the defined benefit plan would present. A 401K can be an element of the defined contribution plan, although it would fail miserably as a sole source for retirement.

The 401k has the lowest contribution limits of any ERISA qualified plan. Why would you advocate going with that? How about a 412b? Act like a DB, although has 100% funding requirements.

Going strictly with a 401k would be a major step backwards.

so what does a pension look like then??? How much per year what kind of beneifits?

I don't think the problem has been the basic pension idea; it's the funding requirements that the law demands. Companies have been able to delay funding until they're so far behind they can't catch up. During the stock market boom of the late 90's the companies made no contributions because they pension assets were increasing along with the stock market. This was fine until the bottom fell out. The ironic thing was that no contributions were made when the airlines were making their largest profits. Legal but stupid.

The 401k idea also has fundamental limitations compared to group pension funds. Mainly, how long are you going to live in retirement? If you live to be 100 and you planned your 401K saving to only live to the statistical average of 74 you're going to be eating roman noodles for a quarter century. A group plan has the ability to cover many variables because some participants will die well before the statistical average and the plan can cover the anomalies.

Also, your argument that your pension is funded by the next generation has turned out to be true, but shouldn’t be. The law should demand that the company contribute enough during your tenure to purchase an annuity at your retirement.

The death of the defined benefit plan is not something to be celebrated. We’re all worse off.

UAL was able to use "credits" attained during the time the plan was over-funded to legally avoid payments for quite some time. The laws that were passed to "protect" the worker, actually worked against us.

In many parts of the world, this would be totally illegal.

so it sounds like the way these pensions are funded is the problem. What does a pension look like though?? 75% of your last pay 50%? Im really not all the informed on current pensions or the good ol days pensions either? Wondering if someone could fill me in.

I can only tell you what the Delta pension plan looked like...of course we are about to get hosed, but here`s what
we contracted for. Take the best concecutive 36 months out of your final 10 years, divide by 3.Then take 60% of that. That is the promised annual pension amount. Subtract 3 1/2% for every year you bail out early. It is possible to take 1/2 of your projected total retirement amount as a lump sum (everyone does) the projection is
based on a
life span of 14years after retirement at age 60. The other half is paid on the first of each month. There are a couple of other stipulations, but that pretty well sums it up. When we finally finished getting hosed, the monthly amount will go bye-bye and the PBGC will be taking over the plan. I`m planning to collect about 30% on the dollar when this happens. I`ve been retired for 8 years, have the house paid for, kids educated and gone, still have the same wife that I started with 43 years ago, so I`m in good shape. Others aren`t so lucky. Save your money boys,
no one knows what the hell is gonna happen in the future.

Great advice, thanks for bringing your experience and insight to the boards.

interesting.... I did some lengthy calculations earlier today. I started at age 24 with pay around 20,000(express jet) and went to age 60 with a top pay of somewhere around 160,000(continental). 10 years at express jet with a 4 year upgrade and the rest with continental with a 10 year stay at FO and a 4 year period where times are bad enough to go back to FO. I went with a 100% match of 6% of your salary (which is what express jet currently pays according to this website) and an 11% annual interest on the 401k account(which the stock market has averaged over its entire history) and I came up with $3,300,000 at the age of 60. Compounding interest is amazing. So here another option on top of pensions of your company offers it.

Is this anywhere close to pay outs that pensions offer? And I assume pensions still cover you for health insurance??


p.s. when I find the paper I did the calculations on I will try and scan it or re-type the exact calcualtions on here.

Figure on a lump sum between $750,000 and $1,400,000, depending on what type of equipment that your best 36 months were on. About the rest of it...depends on how long that the old heart keeps pumping. If the actuarys are correct and you live for that 14 years after age 60, then double the lump sum amount. Keep in mind that the lump sum is drawing interest where ever you park it. The medical coverage is a different ball game all together.
Depending on when you retired, and under which contract covers you (remember, they are renegotiated every 2,3 or 4 years) when you retire, the amount that you pay for preimums changes. From nothing, in my case, to a hundred or more a month. When Medicare kicks in, the company coverage becomes secondary. All of this probably a mootpoint. My company has stopped paying out the lump sum amount, are in the process of imposing a Driconian contract on the guys still working a la sec.1113 of the chapter 11 bankruptsy code. My guess is that after that they`ll file for a section 1114 and go after the medical plans.

Thanks for all your help. I really appreciate it. I think their is a lack of education in my generation of pilots we need you guys to teach us the ins and out. Thanks alot.

That's some sage advice.

Am I ever so happy we had a b-plan. The final figures aren't in yet, but it looks like a 55% to 65% hit for me on the a-plan. :eek:

Our CEO came over with a "protected pension". Somehow or another I cannot shake the feeling that if his pension was on the line, things would have been different.

RE18: Enthusiasm for your proposal is very likely inversely proportional to ones age/time&money "vested" in ones present pension plan. For many people, the milk is already spilled(Read Ch11). For many others, you are proposing changing horses in midstream(or, worse, nearing the finishing line).This would entail "freezing" current pension plans that haven't been trashed (yet???). Lets see; discontinue putting $$ into pension funds, continue to pay generous $$ to current retirees, AND have enough left over to pay "decent" amt. of $$ to future "transitioned" retirees??? I DON'T THINK SO!! Another issue: What ammount of 401K matching would be sufficient to make up the difference between long-held retirement expectations and the reduced ammount from frozen plan? While I'm ATP/CFI-I, and not CFP, I have a pretty fair idea that its going to take a bit more than best case 100% SW Style match over a long period of time to make up for anticipated(inevitable???) shortfalls in a frozen pension plan to 401K plan transition.

When I got hired at US in 1989, the status of an Airline Pilot had been reduced from Absolute Kings in status and compensation in the late 60's down to Average Executive Level compensation in the late 80's. Now in this decade, the assault continues forward and the target is to bring it on par with Greyhound and Trailways drivers. And they (Airline Managements) have achieved this in many areas with the advent of the RJ's and mass sell outs by various union's around the industry.

I have great respect for the Delta guys as they made noise about going out on strike in defense of the career expectations. I hope it is more than noise. But with the draconian, and in my opinion, illegal use of bankruptcy laws, I do not see how they are going to be successful.