Airline Pension Plans
 

The way I read it, the Legacy Carriers have the following "Pension Plans/401K matches":

AA - 16%
UA - 16%
DA - 12%
AL - 13.5%

Are these numbers correct?

dl-15%

ten

Allegiant - 4%

Thanks. I've got 15 years left in this Industry and want to evaluate the best Retirement plan among the Legacy carriers. I realize there will be some possible significant changes in the next 5 years, but Contribution percentages along with Mandatory retirements (early UG) will allow all of us to make better informed decisions regarding our eventual retirements.

16% is correct for UA. At 50 y/o you can do the "catchup" pretax contributions of $22,500 and have a good chance of reaching the 415e limits. So, consider retirements and W2 potential in your analysis. Good luck

A 401k is NOT a pension plan. Don't confuse the terms.

Yes, these are not "matches", they are defined contribution plans which means that DAL at least will put 15% in addition to your pay into a 401K type account. There is no match component, but you can put as much of your own pay into your 401K account as you want (up to the IRS limit) in addition.

I think FEDEX and UPS still have traditional pension plans in effect so they would be the place to go if pension is your #1 motivator.

All this is correct and the 415 limit this year is suppose to be 52,000. So if one's only goal was to save for retirement they could shovel a ton of money into that account. 15% + (employee contribution)

Plus profit sharing, which you can choose to allocate to your 401 I believe. While that's harder to predict (and may go way down or away entirely) so far its been quite nice. 8% this year, I think 6% the year before that, etc.

You are correct. You can have anywhere from 0%-100% of the profit sharing put directly into your 401k. I did 100% last year to avoid the taxes on the bonus which tend to be higher than your tax bracket. Bonus money seems to be taxed at roughly 30-40 % which you can recoup some of that on year end taxes.

I have recently flown with several guys who are only contributing to the ROTH 401K (after taxes) because they hit the IRS limit by September. May as well keep putting money in year round but when you make 250k and the company contributes 15% the company is alone putting away 37500 per year toward your IRS limit of 52k. May as well put the 14.5 into a ROTH 401K :). Unfortunately, I do not have this same dilemma.

Hey Bro, you finished with your 88 training?

Yeah, Kinda wish I had went ahead and bid something more laid back since it seems seniority will be coming sooner rather than later. Being the plug of a category didn't sound very enjoyable. I hear there will be some really good stuff to bid coming fairly soon though so I'll just wait it out here :D

Don't confuse "withholding" on your profit sharing with tax rate.

Your profit sharing that you don't put in your 401k is just income....just like your regular paycheck, when you get your W2 at the end of the year(OK, January for previous year). The difference is that a profit sharing payout has a fixed mandatory 25% federal withholding taken out + state(GA=6%) + FICA(7.65%) + ALPA dues (1.9%). So for example a GA resident gets hit with 40.55% withheld from that PS check + DPMA dues on the amount if you're in that. But when you do your taxes the following year, the profit sharing is just part of your W2 earnings and the 25% they withheld is just part of your total federal tax withheld on the W2. How much fed tax you really end up paying on the PS is a function of what tax bracket you ultimately end up in after all your deductions...

Don't forget that the PS is pensionable as defined in the PWA so you get an extra 15% of the PS amount into your 401k.

True dat and if you put your PS into your 401K you've essentially "prefunded" your 17.5K for the year (under 50) so you will just reach the limit earlier in the year from regular paychecks. After you reach the limit there will be no more of your own money set aside, only company money. Uncle Sam needs his money!

How is it any "extra" in the long run?

If you are making 250k a year, you don't qualify for a ROTH anymore.

There's no income limit for making Roth 401K contributions.

A few comments from what I've read on this thread. It seems I read this stuff over and over and it's not clearly understood......

If you're a high earner, if all you care about is making tax free withdrawals when you retire (assuming you meet the requirements for the Roth withdrawal to be tax free), sure contribute to the Roth. Uncle Sugar is happy to have you pay higher taxes now then you might otherwise in the future. I don't get the fascination with the Roth. It's a tool in your financial toolbox. For some, it's a great tool. For others, not so great. Contributing to a Roth is not necessarily your best option unless you just enjoy paying taxes. If I was making $250K, I doubt I'd be contributing to a Roth unless I was going to be making a crapload of money in retirement or there was some extenuating circumstance.

If you get a lump sum of money and a large percentage is withheld, it doesn't mean you're paying that % in tax. The amount of tax you are going to pay is the sum of lines 45 and 46, shown on line 47 of your 1040. It doesn't matter if your employer withholds 100%, 0%, 25%, one dollar, or a million dollars. You go into the tax tables with the number on line 43, and that's the base tax you're going to owe (assuming no "other taxes" which applies to few). If a lot is withheld, you get a lot back or you owe less. If a little is withheld, you get less back (or owe more).

Contributing to a Roth 401K doesn't get you around the 415c limit. It's $52K for 2014. If you're 50 or older and you contribute to a 401k, you can exceed that 415c limit by the catch-up amount of $5,500.

For example, if your PS amount is $10,000 DAL puts an extra $1500 into your 401k. Total $$ from the PS payment then is $11,500. We have a 15% DC plan and the PS payout is treated like regular compensation so we get a 15% DC contribution from the profit sharing. That 15% is extra money above and beyond the profit sharing amount. Or maybe I'm missing your point?

Nice post. IOW, you can't have a valid investment plan until you have an effective tax strategy.

Bingo. And I think a Roth should be part of that for virtually everyone. If the guy is in a low tax bracket today, it's a no-brainer, imo.

If the guy is in a "high" tax bracket today, because he's making $250k+, he's likely gonna be in a "high" tax bracket in retirement. Guys who make $250k while working are likely gonna be making decent six figures in retirement, unless then plan to keep it all inside their IRA and hand it off to the kids.

And considering our government's inability to balance its budget, and our populations general inability to save for retirement, the marginal tax bracket of today's $250k earner may or may not be higher than that same guy's marginal tax bracket in retirement, when he's pulling out $100k.

Diversification. Just something to think about.

Exactly, it is better to tax the seed instead of the harvest.

There is a great illustration out there about deferring taxes for 30 years by contributing to a 401k or IRA. The IRS ends up recouping all of the taxes that you defer after less than 4 years of distribution, after that point it is all profit for the IRS (and a loss for the investor).

Pay the taxes now, you will be very happy that you did.

I am not sure you can make the leap of logic you made here, but nonetheless, savers should do their best to plan to succeed rather than plan to fail. It remains very possible that the .gov can pull the rug out from under the best prepared.

That wasn't the point of my post. The point is to use the tools put in place by the "lawmakers" to minimize your taxes altogether.

Hmmm....would like to see that illustration as I think I am missing your point. Uncle Sugar gets paid one way or the other. If your effective tax rate is the same when you make the contribution as it is when you take the distribution, it doesn't matter which you contribute to (deductible or Roth), your tax bite will be the same. If your effective tax rate is higher when you retire, you'll pay less in total tax if you contribute to a Roth. If your effective tax rate is lower when you retire (true for most people), you're better off taking the deduction now.

My point a few posts above was that everyone just LOVES the Roth, and happily will contribute to one without even considering the tax implications of doing so. The whole point of contributing to a 401K/IRA/403b/whatever is legal tax avoidance. We want to pay Uncle Sugar as little as possible.

A low income individual should bias towards a Roth to minimize the payment of taxes over his/her lifetime. Higher income individuals should be biasing toward taking the deduction now by contributing to a deductible 401K (for example) while their effective tax rate is likely higher, rather than contributing to a Roth now and paying that higher effective tax rate when they could have paid less tax in the future when they're likely making less money during retirement.

If you're in the prediction business and think that taxes are going to be significantly higher in the future, then sure, do the Roth. To me, if I'm a high earner now and since I think it's impossible to predict the future, I'll take the sure thing deduction now while I'm definitely paying a lot in taxes. Sure, that current high earner will likely be a high earner during retirement, too, but most likely not nearly as high as he/she is now.

The point is......don't blindly contribute to a Roth just because it's all the rage and that's what all your friends are doing.

Eh, not exactly.

Technically, DALs is a %12 "DC" and a %3 401k contribution (no match required). Together it is %15.

In the last few years, it was all complicated because the two pre-merger groups and the post merger pilots were on different programs. It's all the same for everyone now.

Nu

Global,

The you are right about tax rates now and later in your logic. What you are forgetting is that your investments should grow.

So let's assume your tax rate does go down in retirement like you are assuming. Let's say your average tax rate in your earning years is 30% and it goes down to 25% in retirement. Let's say you save $1million during your working years at your 30% tax rate. That $1million grows to $2million by the time you start taking distributions in retirement at your new 25% tax rate. Would you rather pay 30% on your $1million now or 25% on your 2 million later? That is the argument for Roth.

"Tax the seed not the harvest" as another poster said.

The difference between the two is huge. In one case you contribute tax deferred and you pay tax on everything (your contributions plus the gains). In the other case your contribution is taxed but the gains are tax free.

401k's are not tax savings vehicles they are tax deferral vehicles.

I disagree. Most people will be making less in retirement therefore should be in a lower tax bracket. Unless he took good advantage of TVM and invested well whether thru luck or skill. I converted everything to a ROTH, and I now firmly believe it was a mistake. A newbie should probably have everything in a ROTH, but at some point (and everybody's point if a little different) those pilots should stop the ROTH contributions and go with a regular 401k and IRA.


Now THAT I agree with. I am still afraid that the morons in DC will become desperate at some point, and means test Social Security and might even go so far as to test the PBGC monies. But overall, you are right, diversify....

Except there is an extremely high likelyhood that will change. They will come after that money. Watch for it. One way or another. And no one will have any sympathy for you either, because they will structure it to only target "the rich" which is anyone who has more than the numerical majority, and you will have way, way more than that. They will either come after it directly, or at the very least use it to means test other things way, way down. They will get your Roth money one way or another.

Yeah but you'd get that "extra" $1500 regardless of chosing to allocate it to your 401 or just taking the cash, right? The way I read your original post it implied that only if you sent it to your 401 would you get the additional contribution.

I thought I read during the last Obama election, that over 50% of our population is not paying income tax now?

If you have a job, and pay income tax, you are considered "Rich" by their standards, so you -should- pay more, so they can have free cellphones and free health care, without even going to work! :rolleyes:

Oh it gets better than that. A certain "wing" of polititians are already bragging about how a particular piece of medical related legislation is "freeing" people from "job lock" because you no longer will have to work to get things, like health care.

Humanity is hard wired to fall for the Bolshevik/Alinsky method over time. We are no exception.

Call me a cynic, but your conclusion doesn't follow from your premise. Here's my prediction -- feel free to cut it out and save it for 10 years and tell me I'm wrong.

Today's marginal tax bracket for a guy making $250k with a "reasonable" amount of deductions is lower than his marginal tax bracket will be in retirement when his taxable income is $100k.

No you didn't. Your PBGC benefit will still be taxed as ordinary income. Same with your military retirement (if you have one). Same with all the money Delta has contributed to your 401k and DC plans. That's a lot of taxable income in retirement. Even if you converted some to a Roth, I'll bet you'll still have 80% of your income in retirement coming from taxable sources. That also results in 85% of your SS being taxed too.

You shoudn't. I really think you'll be glad you did, when Uncle Sam finally jacks marginal rates up to 50%+ as they were for the 60 years prior to Reagan. They will have to. We will be among the small group of people who actually have good income, even in retirement, to pay tax on.

So, if an addiction is a disability and disabled people can get $50K per year from the .gov and disabled people will always be at the front of the line due to the americans with disabilities act, why isn't marijuana (and every other drug) federally legal already?

How much money should someone have in a retirement account in order to annuitize $50K/yr?

Was it Thomas Jefferson, or Ben Franklin, who said something like:

"Once 51% of the populace realizes they can vote to tax the other 49%, to pay for their benefits, we are all screwed!"

Well, it took a little over 200 years, but here we are!

You know, back in the beginning, you had to be a Land Owner to get to vote.

Now? Any 3rd generation welfare recipient can vote for a free Obama phone.

Why would you ever want to get a job, when you can get everything you need to survive, free?

Nah. It was some French DB, but the point remains...

You're mixing apples and oranges AND the point you're making is factually incorrect. I'd rather pay taxes based upon what's going to give me the most money to spend, post-tax, when I retire. I don't care if it's the seed or the harvest. I just want the most post-tax dollars.

First, let's address the tax issue. If you're going to be in a lower tax bracket in retirement then when the corresponding contribution is made, you're likely better off avoiding the Roth and taking the deductible contribution (all else being equal).

Two, whenever you talk about growth of an investment, in order to make an apples to apples comparison, you have to compare PRETAX contributions to the corresponding POST-TAX contributions. You can't just make a blanket statement about paying taxes on $1M now or $2M later. That's nonsensical. You have to look at the PRETAX dollar contributions to the POST-TAX distribution dollars that got you to that $1M or $2M or whatever, and you're not doing that in your assumption. How much it grows tax deferred within the 401K (no matter what type) doesn't matter, either.

For example, let's say a pilot can only afford to contribute $10,000 pretax dollars per year to his 401K. He can choose a Roth or deductible contribution. His effective tax rate is 15% now and he plans on it being 15% in retirement (he expects his retirement income to be lower but tax rates to be higher so no net change in the effective tax rate). Which type of 401K contribution will give him the most post-tax dollars in retirement? In the above example, does his annual return affect how much he has in post-tax dollars on the other end if he chooses a deductible contribution vs. a Roth? Does the length of his investment period affect how much he has in post-tax dollars on the other end if he chooses a deductible contribution vs. a Roth? Does it matter if the "seed" or the "harvest" is taxed in this example?

And if you whip out your Excel spreadsheet, in the example above, you'll see none of the variables matter. It's the effective tax rate on each end that matters, not the growth rate as you seem to imply. Not the length of the investment period, either. The guy ends up with the same amount of money, post-tax, no matter what variables you change. The effective tax rate, however, DOES matter.

Your parable doesn't make any sense. Don't talk in parables. Talk in math.

scambo

Depends a lot on the age one would need 50k/yr. At age 65, probably around 1.6 would do it with conservative withdrawal rates and an allowance for inflation. If your receipent in question is disabled at age 35, probably 2 million dollars wouldn't do it. Also, these averages have some built-in probablity for running out of money--maybe 5-10% chance. The .gov disability doesn't, short of national bankruptcy and we throw the disabled under the huge bus.

Gloopy

Agreed, anyone should enter retirement basically debt free, esp mortgages. And the 70% replacement goal is likely high and finance advisors like it because it makes people save more. My calcs make me think 50-60% should be enough.

GF

GF;
The question was more rhetorical. I'm not talking about lost a leg disabled or brain injury disabled...I'm talking about drug use by choice and addiction as a label disabled, followed by the "in the system" disabled income growth encouragement.

And as I've said before, I'm a tool, so I can't use that as a defense.