DLax85

I'm bumping this thread again, so pilots can review the asset allocation and current rate of return FedEx is getting in our current A Fund

Combine it with the required "hurdle rate" in the new, proposed Variable Benefit Plan

How conservatively or aggressively do you want a "third party entity" to manage your Variable Benefit Plan...??

FDX1

That's great...tell me how much your earning on your A-Plan after 25 years of service. Then calculate how much inflation has eaten away at that $130K since 1999. If those two issue alone are dealt with, in any real way, I'm interested.

But I do get your point and if you are strictly comparing the expected investment returns on the current pension to what FedEx will need to invest to meet the future obligations of the pension then it actually makes the A-plan look like it's future is even more tedious.

DLax85

Yes - due to decreased rates of returns on bonds, it's much more difficult to fund any type of Defined Benefit plan. Interest rates have steadily fallen for about 15 years. These reduced rates of return are one reason DBs have falllen out of favor from a company perspective.

Under a Variable Benefit Plan which begins today, do you believe any increase in the cap above $260K will be "retroactive"?

...or will this new cap only count on future earnings?

To retroactively fund an increase would be extremely exspensive

Do you think years of service under the old plan, will transfer to the new Variable Benefit plan?

....or will Years of Service accrual start over again from zero?

Once again, to retroactively apply the YOS under our current A plan to a new Variable DB plan would be expensive

Dig down, and I think you will see the plans are funded very differently --- that's why the MEC believes the company may be interested

The Variable Plans are really defined contribution plans that pay out as a variable annuity when you retire

But unlike our current defined contribution plan (our B fund) each pilot can't control the investment allocation, thus each pilot can't dial up or dial down the risk based on their personal needs and assessment of the financial landscape

It's often said the company is willing to pay X dollars anytime we negotiate with them.

We don't negotiate X, rather we negotiate where X will be spent --- where it will be "spread around"

I'm not confident the X dollars spent on increasing our pension benefits will be spread around evenly

How many times have we agreed to increased benefits with the stipulation one must be 54 years or older on the date of signing?

pinseeker

Yes, this variable plan has an opportunity to increase our DB payout over $130K, but it also has the possibility of paying out less than $130K. It all depends on the market and whether or not you got hired at the right time or not. Ask the MEC if there will be a guaranteed floor on DB payout, such as $145K for life, regardless of market performance.

kronan

Only Govt pensions are retroactive.

Thought the concept of a Variable plan meant a floor value, for life.

Doubt it would be an increased floor of 145, but that wouldn’t hurt my feelings. Think a lot of it would deal with the potential administrative savings on the company.

higher the floor means greater protection during economic downturns but lower rewards during economic boom times...as an example, FedEx Pension returns likely greatly exceeding the planned rate over the past year

I know if my savings continued to grow at the same performance level I’d be retiring sooner rather than later, but I think it likely the market will return to the mean

DLax85

While nobody can accurately predict the market, what’s your take on how the equities market is priced right now?

A little expensive or a little cheap?

Any guess where bond yields are headed?

..and hopefully we all know the correlation between bond yield and bond price

With all that said, would a DB Plan converted to VB plan be buying in at a high or a low.....??

Remember; regression to the mean

kronan

The here and now is important, but my 1st pension check is a decade away and I hope to be cashing them for 30+ years

over that timeframe, I’d tend to expect several years of an underperforming market

As to current market, I think it’s overpriced and likely due for a correction once the emotions crash. Which is why I have cash as a portion of my portfolio.

the trend is your friend, but Imalso try and keep the old adage in line of being fearful when others are greedy and greedy when others are fearful

pinseeker

According to the Blitzstein website, the main attraction to this type of plan for the company is a known payment into the plan and the fact that it can't be underfunded thereby not being subject to PBGC penalty payments. So if the company is contributing the same amount every year, if the market underperforms, how can there be a guaranteed floor? From 2001-2013, the market was essentially flat. There are times in the last 30 years that if you followed market performance, you would actually not have the required money to ensure $130K for life. So who pays the difference if there is a shortfall? The company? They already agreed to a set amount. Alpa? Or do they just borrow from the future to ensure current payments?

Right now our DB plan is guaranteed. It is fully funded. There are no PBGC penalties. Yes, the company could go bankrupt in the future, just like any other company, but if that happens we have bigger things to worry about. And if the company still owns the plan as was stated in another thread, what keeps them from dissolving the Variable DB plan under bankruptcy just the same as the current plan?

Lots of questions about the plan, little information from the MEC. This is to important for the MEC to continue the just wait and see attitude. It is time for them to be providing specifics.

DLax85

Spot on Pineseeker

There is a major difference the way this plan is funded

There is a major difference the way you accrue the benefits compared to our current A plan

It’s really a defined contribution plan that you don’t control, which pays an annuity at the end

Ask deep questions. Think critically. Your retirement depends on it

DLax85

Bumpty, Bump, Bump, Bump!!

Best read and understood from the bottom up

Seriously guys, please learn more about terms like cost of capital, assumed rates of return, and hurdle rates

Your full understanding of any proposed Variable Benefit Plan depend on it

Verify all assumptions independently and think critically

One of my favorite finance professors had a great quote: “Those who believe in constant growth (return) rates have large calculators, and small minds”