Pax vs Cargo Retirement
06-03-2017, 01:34 PM
#1
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Pax vs Cargo Retirement
Just curious what everyone thinks about the "pax vs cargo" decision for a retiring military pilot (mid to late 40s) when it comes to the value of the retirement packages?
Seems like the major pax airlines all offer a 15-16% B Plan with a "cash over the cap" provision. Additionally, many offer profit sharing. Both FedEx and UPS offer an A Plan and a 8 or 12% B Plan but with no "cash over the cap" provision and no profit sharing.
For the purposes of this discussion, all I want to look at is the value of the retirement plans for a pilot starting in their mid to late 40s. Assume everything else is equal...only look at the value of the retirement plans. Assume average rates of return for the B Plan investments.
My assumption is that the "cargo retirement model" is more valuable for a pilot starting in their mid to late 40s since they have fewer years to accumulate B Plan monies...but that is just my assumption. Has anyone done any research on this?
Thanks
Seems like the major pax airlines all offer a 15-16% B Plan with a "cash over the cap" provision. Additionally, many offer profit sharing. Both FedEx and UPS offer an A Plan and a 8 or 12% B Plan but with no "cash over the cap" provision and no profit sharing.
For the purposes of this discussion, all I want to look at is the value of the retirement plans for a pilot starting in their mid to late 40s. Assume everything else is equal...only look at the value of the retirement plans. Assume average rates of return for the B Plan investments.
My assumption is that the "cargo retirement model" is more valuable for a pilot starting in their mid to late 40s since they have fewer years to accumulate B Plan monies...but that is just my assumption. Has anyone done any research on this?
Thanks
06-03-2017, 03:01 PM
#2
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Joined APC: Oct 2006
Position: Midfield downwind
Posts: 1,928
I'm gonna be that a-hole that replies to the thread and doesn't actually answer your question.
The mistake, unfortunately, is that your question assumes that any of that will be around in its present form in 23 years. I believe that is a highly unlikely scenario for someone who wants to wargame the long-term finances of picking one airline over another. If you look at what was around 23 years ago, what was around 10 years ago, and what's around today, you'll find substantial variation.
I would not factor current retirement into the decision on which airline to spend a career, and I would financial plan for retirement expecting none of it to be there when you get to the finish line.
So, sorry if you're looking for some actuarial analysis or data, which I have not performed and cannot provide for the thread.
The mistake, unfortunately, is that your question assumes that any of that will be around in its present form in 23 years. I believe that is a highly unlikely scenario for someone who wants to wargame the long-term finances of picking one airline over another. If you look at what was around 23 years ago, what was around 10 years ago, and what's around today, you'll find substantial variation.
I would not factor current retirement into the decision on which airline to spend a career, and I would financial plan for retirement expecting none of it to be there when you get to the finish line.
So, sorry if you're looking for some actuarial analysis or data, which I have not performed and cannot provide for the thread.
06-03-2017, 03:23 PM
#3
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Joined APC: Nov 2016
Posts: 936
Go where you can upgrade the soonest to start filling up those B Funds and 401k. Both FDX AND UPS A Funds are currently capped at about a max of 100k for 20 years, might go up might not. I like the A plan, sure glad I have it. But it will cost more and more negotiating capital to improve it. FDX claims that it takes about $4 today to increase A fund value by $1.
06-03-2017, 04:39 PM
#4
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FedEx A plan is capped at 130k, assuming a 25 year career. High 5 to get there will be less and less of a problem.
UPS A plan has an additional calculation to improve their A plan. Assuming you Retire as a Capt, 30 years has a 126k A plan. FO numbers are substantially less, don't have the number handy, but think it's in the 96'sh range.
The nice thing about Cargo, is the stability. People may quit flying for various reasons, but they'll still want their stuff.
Nice thing about Pax is majority of the flying is daytime. But can be some long, long days.
Nice thing about Cargo is all the complaining from the boxes just doesn't happen around the pilots.
Pax, and complaining, and entitlement seem to go hand in hand.
Not too long ago there was an incident of a Pax chasing down a pilot who was just trying to get home in KC
UPS A plan has an additional calculation to improve their A plan. Assuming you Retire as a Capt, 30 years has a 126k A plan. FO numbers are substantially less, don't have the number handy, but think it's in the 96'sh range.
The nice thing about Cargo, is the stability. People may quit flying for various reasons, but they'll still want their stuff.
Nice thing about Pax is majority of the flying is daytime. But can be some long, long days.
Nice thing about Cargo is all the complaining from the boxes just doesn't happen around the pilots.
Pax, and complaining, and entitlement seem to go hand in hand.
Not too long ago there was an incident of a Pax chasing down a pilot who was just trying to get home in KC
06-03-2017, 08:38 PM
#5
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Joined APC: Dec 2016
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Not sure if this answers your questions, but here is a basic rundown of my analysis.
The current A plan of 130k is not cost of living adjusted. So when I reach age 65 in 28 years from now the buying power adjusted for 2.5% inflation per year provides me roughly 60k of buying power in 2045. That is the first year of retirement, it steadily goes down year after year assuming it is not adjusted in future contracts.
On the other hand if a B plan provides 50k this year and grows at a conservative 4% compound interest then in 28 years I will have 150k.....which if we adjust for the same inflation rates provides a buying power of 75k.
The difference for me is that the B plan is mine and the A plan, while well funded, is a promissory note. I think there is an argument to be made in terms of risk mitigation with a hybrid A and B plan, but if I had to make a binary choice between the two I would choose an aggressive B plan that provides "cash over cap." Throw in additional profit sharing and it makes it a no brainer.
The current A plan of 130k is not cost of living adjusted. So when I reach age 65 in 28 years from now the buying power adjusted for 2.5% inflation per year provides me roughly 60k of buying power in 2045. That is the first year of retirement, it steadily goes down year after year assuming it is not adjusted in future contracts.
On the other hand if a B plan provides 50k this year and grows at a conservative 4% compound interest then in 28 years I will have 150k.....which if we adjust for the same inflation rates provides a buying power of 75k.
The difference for me is that the B plan is mine and the A plan, while well funded, is a promissory note. I think there is an argument to be made in terms of risk mitigation with a hybrid A and B plan, but if I had to make a binary choice between the two I would choose an aggressive B plan that provides "cash over cap." Throw in additional profit sharing and it makes it a no brainer.
06-03-2017, 11:56 PM
#6
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This was the conventional wisdom a decade ago, but 2007-2008 proved that people still want their stuff, but when money is tight, they don't want their stuff tomorrow. They're willing to wait a week for their item to be shipped by truck, or come by boat if they can save some money.
06-04-2017, 04:43 AM
#7
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The difference for me is that the B plan is mine and the A plan, while well funded, is a promissory note.
I do not plan on my pension being there, after watching a family member at United lose his. I'd trade it for a bigger B fund if I could.
Take the first job you're offered and upgrade ASAP. Don't plan on checks coming for fifty years from ANY company.
06-04-2017, 08:44 AM
#9
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You can plan on your A plan not being there, but if you are at ups and FedEx the odds are it will, ups has been profitable for 80+ years since
1907, they won't declare bankruptcy to dump 100 to 200 million debt,
And loose 100 billion stock valuation. Neither will FedEx. The pax carriers declare bankruptcy on a rotating basis to lower the pay rates and break the contracts, resetting the bar to basement levels, the profit sharing is nice but it won't pay anything 50% of the time. The b plan is a nice feature but will not make up for 100 k a yr in defined benefit. My point is that pax carriers have huge pilot costs and use bankruptcy as a weapon, the cargo carriers have much more to lose than they do, the airline is only a part of the company.
1907, they won't declare bankruptcy to dump 100 to 200 million debt,
And loose 100 billion stock valuation. Neither will FedEx. The pax carriers declare bankruptcy on a rotating basis to lower the pay rates and break the contracts, resetting the bar to basement levels, the profit sharing is nice but it won't pay anything 50% of the time. The b plan is a nice feature but will not make up for 100 k a yr in defined benefit. My point is that pax carriers have huge pilot costs and use bankruptcy as a weapon, the cargo carriers have much more to lose than they do, the airline is only a part of the company.
06-05-2017, 09:22 AM
#10
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Position: 757 Capt
Posts: 2,419
The nice thing about FedEx and UPS is that we're both airlines and trucking companies (varying percentages obviously, and different degrees of separation)
So, even with Mode Shift...more than likely FedEx is still making money. Just in a different segment. And, barring a FedEx ground spin-off, I'm not too worried about my pension going away. Worst case-FedEx goes bankrupt, retiring at 60 nets me somewhere around 38% of my pension (about 55% for retiring at 65)
And lasts for my lifetime. So, if pension is roughly the equivalent of a 3.3M B plan. 38-55% isn't exactly chump change. IS a big problem if the only savings you have are the pain free one generated by the Company's contribution to your B plan.
IF you want a nice retirement, sacrificing Now and putting $$ into your 401k and IRA will really open up your options.
Bigger problem is just don't assume FedEx or UPS is a 100% guarantee. Plenty of really good people are passed on by the company for various, unknown reasons.
So, even with Mode Shift...more than likely FedEx is still making money. Just in a different segment. And, barring a FedEx ground spin-off, I'm not too worried about my pension going away. Worst case-FedEx goes bankrupt, retiring at 60 nets me somewhere around 38% of my pension (about 55% for retiring at 65)
And lasts for my lifetime. So, if pension is roughly the equivalent of a 3.3M B plan. 38-55% isn't exactly chump change. IS a big problem if the only savings you have are the pain free one generated by the Company's contribution to your B plan.
IF you want a nice retirement, sacrificing Now and putting $$ into your 401k and IRA will really open up your options.
Bigger problem is just don't assume FedEx or UPS is a 100% guarantee. Plenty of really good people are passed on by the company for various, unknown reasons.
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