Quote:
Equities ~ 3.9% - 5.9% (Mean 4.9%)
Bonds ~ 0.7% - 1.7% (Mean 1.2%)
A typical retirement fund with a 50/50 asset allocation would yield ~ 2.30% - 3.80% (Mean - 3.05%)
Let's remember the modeler used a "hurdle rate" of 5%.
Assuming we negotiated such a "hurdle rate"....or even a 4% rate...what would happen to each pilots retirement benefit over the next 10 years if Vanguards forecast proves accurate?
We are where we are. Let the company continue to take the A fund risks.
In Unity,
DLax
Updating my own post here with more current asset allocation ranges provided by Fedex retirement plan.Originally Posted by DLax85
Bumping an old thread with some updated 10-year forecasts from VanguardEquities ~ 3.9% - 5.9% (Mean 4.9%)
Bonds ~ 0.7% - 1.7% (Mean 1.2%)
A typical retirement fund with a 50/50 asset allocation would yield ~ 2.30% - 3.80% (Mean - 3.05%)
Let's remember the modeler used a "hurdle rate" of 5%.
Assuming we negotiated such a "hurdle rate"....or even a 4% rate...what would happen to each pilots retirement benefit over the next 10 years if Vanguards forecast proves accurate?
We are where we are. Let the company continue to take the A fund risks.
In Unity,
DLax
Since 2015, the Fedex retirement allocation has averaged a more conservative 40% Stock / 60% Bond asset allocation.
Applying this 40/60 asset allocation to the Vanguard 10 year forecast of:
Equities ~ 3.9% - 5.9% (Mean 4.9%)
Bonds ~ 0.7% - 1.7% (Mean 1.2%)'
Yields forecast range of 1.98% - 3.38% (Mean 2.68%)
Don't like Vanguard, how about Schwab's latest forecast in their retirement tools (...the preferred investment advisor to ALPA pilots!):
(...Admittedly, their forecast is a little more optimistic than Vanguard, but still yields a return less than the 5% hurdle rate assumed in the VBP Modeler...)
Equities ~ 6.5%
Bonds - 2.55%
Yields a 40/60 forecast of - 4.13%
And yes, while the Retirement plan itself is estimating a 6.5% Estimated Return on Assets, the plan has a long history of lowering their expectation steadily over the past 20 years. From a high of 10.9% in 2000.....to 10.10% in 2003....to 9.10% in 2004...to 8.5% in 2008....to 8.0% to 2010....to 7.75% in 2014...to 6.5% in 2016.
My guess, due to the move to a more conservative asset allocation and the long term reduction in forecast in bond market returns, the fund will be forced to lower their EROA even lower.
Negotiating a fixed "hurdle rate" in any CBA would truly be a fool's errand!