Retirement Options
 

Alaska Airlines' TA just came out. There are three retirement options:

1. Current A/B Plan: 1.9% multiplier pension and 3% into the 401(k)
2. Rebalanced Plan: 1.0 multiplier and an increasing contribution to the 401(k) starting at 8% going up 1% each 5 years to 11%.
3. Voluntary Soft Freeze: same 1.9% multiplier to final average compensation at time of retirement but years in service frozen as of 12/31/2009 (3 years, 2 months for me) and 13.5% into 401(k)

I've been with the company since 10/2/2006 and if I retire at 65 will have 29 years in service.

I'd love to see some thoughts on this.

Thanks!

The idea of an A plan is great, but the risk of an airline shedding the expense in bankruptcy is very real - are you willing to take that risk?

A 401K is portable which makes it attractive, also if you can self manage the assets you could potentially outperform A plan returns (insert pilot investor jokes here).

With 11% company contribution into a 401K, you could match pretax 15% and be pretty close to the IRS 415 limits.

I'm sure we'll see Excell spreadsheets popping up soon to help with the analysis.

The majority of UAL pilots lost the majority of their pensions. The PBGC will pay the older pilots a fraction of what they were promised, and the younger pilots got nothing. There is a specific age, which I don't remember, above which the PBGC pays you your full benefit, up to the PBGC maximum, but the PBGC maximum is much less than most pilots were due.

That 1.9% multiplier looks tempting, but you have 25 years to go, and many bad things can happen in that time.

If you take the large 401k, you don't lose it when your airline goes bankrupt.

Joe

Having lost my pension (which I was counting on) over half way through my career, I highly recommend option #2! Do everything you can to max out that 401k. Like the others said, the 401k is YOUR money. A pension can be wiped out through the magic of Chapter 11 bankruptcy.

The other key to the 401k is to be very smart about how you invest it. At Delta, we were able to get a brokerage link that gives us a broad range of investment options. The biggest difficulty in making most 401k's work is that you are generally limited to a bunch of crappy mutual funds. Last year provided a good example of what can happen with that. Get ALPA to lobby your company to get a brokerage link agreement similar to ours. The timing has to be right to get the company to agree to something like that, but it's really a very low cost item for them, it's definitely something companies with 401k's are starting to do for their employees, and it's extremely valuable to airline pilots who obviously can no longer count on any kind of a pension setup.

In addition to a brokerage window a roth avenue is also helpful to negotiate. Taxes and your money can play with your planning model for retirement, especially when you are your own pension fund manager and are starting this process at a young (and cheap tax-wise) age/income.

I totally agree. The Roth is definitely the way to go. The ultimate setup is a Roth (401k and/or IRA) with a brokerage window/link.

Remember: the Roth income limits for 2009 are $120k single/$176k married! (The soon to be definition of "Rich"!!!!)

You can always contribute to a non-deductible Traditional IRA, no matter how much you earn, which may or may not work out better than a Roth for you, depending upon what your marginal tax bracket is now vs. what you anticipate it will be in the future.

Did the OP get any guidance concerning his original post?