Quote:
Originally Posted by Commando
The 16% B Plan at 300K is really a 11% B plan for every Captain or anyone making 300K a year. This needs to be out there and educated to the masses. It's not because of the Federal Limits. I think the Total Contributions for the B Plan and 401K is around 50K per year. So once the 50K limit is Hit, the contributions stop.
So in reality the B-Plan of 16% is a 11-12% B Plan.
Commando,
It's much more complicated than that.
IRS 415 limits for 401K contributions are $18,000 annually in 2015. Catch-up contributions for employees over age 50 allow an additional $6,000 for a total of $24,000 for over age 50 employees.
Defined contribution plan limits for 2015 are $53,000. Catch-up contributions for employees over age 50 allow an additional $6,000 for a total of $59,000 for over age 50 employees.
The annual IRS compensation limit is $265,000.
The total from all plans (401K and Defined Contribution) cannot exceed the $53,000 ($59,000 over age 50) IRS 415 limit. If Fedex has proposed an 18% Defined Contribution that would mean Fedex would contribute 18% of annual compensation up to the $265,000 IRS limit or $47,700 annually. For the remainder of the compensation above the $265,000 limit Fedex could not contribute any more to your Defined contribution plan they would likely just pay you an extra 18% salary for the compensation above $265,000.
Though the IRS limit is $53,000 ($59,000 over age 50) Fedex could only contribute $47,700 of the $53,000 ($59,000) based on an 18% DC-plan. You would have to contribute the remainder as a 401K contribution to reach the $53,000 ($59,000) IRS limit. Another twist, though it's not an IRS restriction, some plans (AA did this) will not allow you to contribute to your 401K once you reach the $265,000 IRS annual limit. So in order to maximize your contributions of $53K/$59K you have to make sure you contribute to your 401K the difference from the $47,700 in this example and the $53K/$59K limit before your reach $265,000 in compensation.
If in the future your Captains make $360,000 annually the Company will not contribute 18% of $360,000 into their Defined Contribution plan because they will be limited by the annual IRS compensation limit. If a pilot made $360,000 in 2015 and had a 18% contribution plan that would equate to $64,800 in total contributions but the contribution plan limits in 2015 are $59,000 for over age 50 pilots so the pilot would have $47,700 contributed by the Company (18% of $265,000) he then could contribute an additional $11,300 ($59,000 limit minus $47,700) to his 401K and the additional $5,800 ($64,800 minus $59,000) would be paid as taxable income.
Now FedEx and ALPA may have negotiated something different but that is how it works with most airline plans.
There is no way I would give up an A-plan for a larger B-plan. First and most importantly, A-plans are not subjected to stock market swings.
If the stock market crashes the day before you retire your A-fund is not affected while your B-fund most likely will have a considerable loss. Secondly, the percentage B-fund to replace your A-fund is much larger than 18%. Thirdly, with the IRS 415 limits you will not be able to fund your retirement tax free with the entire 18% for high wage earners which further decreases the value of the 18%.