IAM RampPension Update: What Do the Changes Mean?

[Jester]

My Dear Gentle Mr. Roabilly,

While I am not as paranoid as would you be for the ghost of Boss Canale, I will admit to some questions upon review of the "Comparison of Schedule A and Schedule B Benefit Values". While I was attempting to calculate the required rate of return for the pension plan to meet its obligations, I realized the required returns depend upon the amount of the Hourly Employer Contribution Rate. For example, under Schedule A, if there is a $1 per hour contribution the monthly benefit per year of service equals $78.30, so logically speaking if the Contribution Rate was $2 per hour, then it should be double at $156.60, but instead it is only $142.43... so where did the difference go?

Needless to say, when attempting figure a rate of return, it is impossible as we do not know the weighted obligations based upon the various contribution rates. For example, on Schedule B with a $1/hour contribution rate versus a $10/hour contribution rate would be $46.98 and $293.76 monthly benefits per year of service, respectively. On the other side of the spectrum of a $.10/hour contribution versus a $1/hour contribution rate would be $5.15 and $46.98 monthly benefits per year of service, respectively. Clearly there are not 1 for 1 ratios in required returns, so would the Pension Administrators suggest they expect to earn LOWER rates of returns for HIGHER hourly contribution rates? Of course, that is non-sensical, as I would expect the pension fund to be investing in a like manner for all contributions in a prudent and reasonable fashion.

It would appear to me there is a wealth transfer from those earning a higher contribution rate to those earning a lower contribution rate, and I doubt those who are fortunate enough to have negotiated a higher contribution rate would be keen about part of their pension being used for those who did not negotiate a higher contribution rate.

So Opines Jester.

 

[roabilly]

My Dear Gentle Mr. Roabilly,

While I am not as paranoid as would you be for the ghost of Boss Canale, I will admit to some questions upon review of the "Comparison of Schedule A and Schedule B Benefit Values". While I was attempting to calculate the required rate of return for the pension plan to meet its obligations, I realized the required returns depend upon the amount of the Hourly Employer Contribution Rate. For example, under Schedule A, if there is a $1 per hour contribution the monthly benefit per year of service equals $78.30, so logically speaking if the Contribution Rate was $2 per hour, then it should be double at $156.60, but instead it is only $142.43... so where did the difference go?

Needless to say, when attempting figure a rate of return, it is impossible as we do not know the weighted obligations based upon the various contribution rates. For example, on Schedule B with a $1/hour contribution rate versus a $10/hour contribution rate would be $46.98 and $293.76 monthly benefits per year of service, respectively. On the other side of the spectrum of a $.10/hour contribution versus a $1/hour contribution rate would be $5.15 and $46.98 monthly benefits per year of service, respectively. Clearly there are not 1 for 1 ratios in required returns, so would the Pension Administrators suggest they expect to earn LOWER rates of returns for HIGHER hourly contribution rates? Of course, that is non-sensical, as I would expect the pension fund to be investing in a like manner for all contributions in a prudent and reasonable fashion.

It would appear to me there is a wealth transfer from those earning a higher contribution rate to those earning a lower contribution rate, and I doubt those who are fortunate enough to have negotiated a higher contribution rate would be keen about part of their pension being used for those who did not negotiate a higher contribution rate.

So Opines Jester.

Mr. Jester...

You and I are in agreement for a change. Your dissection of the schedules and returns certainly look, and sound valid. I’m not a financial guru, so it will have to be folks like you that will shed light on the plan.

Incidentally, it’s not paranoia… just an observation. I know everyone, you included, would love to blame the ND folks. The ND folks did not negotiate this fiasco!

So parries…

BroBilly

 

[Jester]

Mr. Jester...

You and I are in agreement for a change. Your dissection of the schedules and returns certainly look, and sound valid. I’m not a financial guru, so it will have to be folks like you that will shed light on the plan.

Incidentally, it’s not paranoia… just an observation. I know everyone, you included, would love to blame the ND folks. The ND folks did not negotiate this fiasco!

So parries…

BroBilly

Mr Dear Mister Roabilly,

Thank-you for one of those rare kind words of support.

I have further reviewed the "Comparison of the Schedule A and Schedule B Benefits Values", in particular the Schedule B side of the table, as that being the new reality. As I mention, in a prior post, it would appear that those workers who are fortunate enough to have negotiated higher contribution rates appear to be paying for those workers who have negotiated a lower contribution rate.

While it is nearly impossible to analyze every possible outcome, I believe using some reasonable assumptions and typical situations in order to demonstrate my aforementioned point. In the following examples the assumptions are 20 years of work covered under the pension, with a retirement at 65, and 15 years of a life expectancy afterwards. My objective would be to determine the required rate of return on the pension plan based upon the hour contribution rates, as they are not a 1 for 1 ratio, as I noted in my prior post.

Ideally speaking, in any pension fund, there would be just enough earned through the working years to pay for the retirement years, keeping in mind the capital (less any retirment benefits paid out) would be earning some investment return during that time. Of course, while one is working there is the employer contribution and more importantly, the lack of payment going out from retirement. I believe a useful way of viewing the problem is to compute the Future Value of the contributions during the working years such that they equal the Present Value of discounted cash flows during the retirement years based on life expectancy.

So this was the results of the analysis from Schedule B:

$.10/hour contribution rate ($17.33 per month) over 20 years, $103 monthly benefit ($5.15 Pension Benefit Per Year of Service x 20 years) over 15 year life expectancy requires approximately 8.3% average return on the pension's investments.

$1/hour contribution rate ($173.33 per month) over 20 years, $939.60 monthly benefit ($46.98 Pension Benefit Per Year of Service x 20 years) over 15 year life expectancy requires approximately 7.8% average return on the pension's investments.

$10/hour contribution rate ($1,733.33 per month) over years, $5,875.20 monthly benefit ($293.76 Pension Benefit Per Year of Service x 20 years) over 15 year life expectancy requires approximately 5.234% average return on the pension's investments.

It should also be noted that under the old, Schedule A for a $1/hour contribution rate (which is approximates the US FSA pension), the required average rate was approximately 9.0% versus the Schedule B of 7.8%.


I would conclude a few issues about this pension plan, as follows:

The pension plan as demonstrated by the analysis is using the higher hourly contributions to pay for those with lower contributions. Unfortunately, it severely reduces the returns for those pensions with higher contribution rates.

The pension plan (in particular for those with a higher contribution rate) are not providing an adequate rate of return, especially as these are long term investments, as an index fund like the S&P 500 would have performed better over the past 40 years.

As the pension plan has failed to provide stable and higher returns, I think we need to look seriously at some type of 401K plan as this so-called "defined benefit" has failed in its returns and its promises.

So Views Jester.

 

[roabilly]

Mr Dear Mister Roabilly,

Thank-you for one of those rare kind words of support.

I have further reviewed the "Comparison of the Schedule A and Schedule B Benefits Values", in particular the Schedule B side of the table, as that being the new reality. As I mention, in a prior post, it would appear that those workers who are fortunate enough to have negotiated higher contribution rates appear to be paying for those workers who have negotiated a lower contribution rate.

While it is nearly impossible to analyze every possible outcome, I believe using some reasonable assumptions and typical situations in order to demonstrate my aforementioned point. In the following examples the assumptions are 20 years of work covered under the pension, with a retirement at 65, and 15 years of a life expectancy afterwards. My objective would be to determine the required rate of return on the pension plan based upon the hour contribution rates, as they are not a 1 for 1 ratio, as I noted in my prior post.

Ideally speaking, in any pension fund, there would be just enough earned through the working years to pay for the retirement years, keeping in mind the capital (less any retirment benefits paid out) would be earning some investment return during that time. Of course, while one is working there is the employer contribution and more importantly, the lack of payment going out from retirement. I believe a useful way of viewing the problem is to compute the Future Value of the contributions during the working years such that they equal the Present Value of discounted cash flows during the retirement years based on life expectancy.

So this was the results of the analysis from Schedule B:

$.10/hour contribution rate ($17.33 per month) over 20 years, $103 monthly benefit ($5.15 Pension Benefit Per Year of Service x 20 years) over 15 year life expectancy requires approximately 8.3% average return on the pension's investments.

$1/hour contribution rate ($173.33 per month) over 20 years, $939.60 monthly benefit ($46.98 Pension Benefit Per Year of Service x 20 years) over 15 year life expectancy requires approximately 7.8% average return on the pension's investments.

$10/hour contribution rate ($1,733.33 per month) over years, $5,875.20 monthly benefit ($293.76 Pension Benefit Per Year of Service x 20 years) over 15 year life expectancy requires approximately 5.234% average return on the pension's investments.

It should also be noted that under the old, Schedule A for a $1/hour contribution rate (which is approximates the US FSA pension), the required average rate was approximately 9.0% versus the Schedule B of 7.8%.


I would conclude a few issues about this pension plan, as follows:

The pension plan as demonstrated by the analysis is using the higher hourly contributions to pay for those with lower contributions. Unfortunately, it severely reduces the returns for those pensions with higher contribution rates.

The pension plan (in particular for those with a higher contribution rate) are not providing an adequate rate of return, especially as these are long term investments, as an index fund like the S&P 500 would have performed better over the past 40 years.

As the pension plan has failed to provide stable and higher returns, I think we need to look seriously at some type of 401K plan as this so-called "defined benefit" has failed in its returns and its promises.

So Views Jester.

Mister Jester...

I’m in agreement again with your observations… however there are still a few dynamics that are not addressed.

1) Companies love the 401k plans because they know a certain percentage of workers will simply NOT contribute… or will under contribute. This saves them big money over time, and that is why we have seen the standard company pensions lose ground and get replaced by the 401k plans.

2) Stock Market and equity indexes have been misrepresented in terms of investment returns. Some finical advisors are now indicating a 4 to 5 percent return rate as more realistic than the much touted 10% rate that was originally advertised by many plans.

What would you suggest for Fleet Service in the upcoming negotiations in terms of retirement options?

P.S. Most of the boys down here are sayin’ Guns ‘n Gold!

So extends holiday greetings…

RoaBilly

 

[The Janitor]

Mister Jester...

I’m in agreement again with your observations… however there are still a few dynamics that are not addressed.

1) Companies love the 401k plans because they know a certain percentage of workers will simply NOT contribute… or will under contribute. This saves them big money over time, and that is why we have seen the standard company pensions lose ground and get replaced by the 401k plans.

2) Stock Market and equity indexes have been misrepresented in terms of investment returns. Some finical advisors are now indicating a 4 to 5 percent return rate as more realistic than the much touted 10% rate that was originally advertised by many plans.

What would you suggest for Fleet Service in the upcoming negotiations in terms of retirement options?

P.S. Most of the boys down here are sayin’ Guns ‘n Gold!

So extends holiday greetings…

RoaBilly

I would suggest we refrain from negotiating increases in company contribution levels. Keep the IAM pension as is, it is what it is, and not a worthy thing to sink increased levels into. Also, it is quite clear that the IAM trustees used the "A scalers" to not only take a future defined benefit hit but also to subsidize the B scalers and the B- scalers. Only the "A" scalers were affected. In fairness, it should have been a shared concession across all plan participants but politics and pending elections probably played a role.

And what about negotiations? If you settle before 2014 then you will be taking a huge concession on your future pension. If a new agreement is reached in 2011 then the participants will need about a 75 cent pay increase just to offset the pension cut if settled before 2014. God forbid we branch the future defined benefit by drunkenly sinking increased company contributions to blow more smoke up the workers collective arses.

IMO, the IAM may want to settle a new contract rather quickly so the IAM trustees won't have to wait till 2014. If a fair contract can be reached then great, but if it comes by taking money out of one pocket and putting it in another then there will be difficult times indeed. Throw in a potential UA merger, as opposed to AA, and there are all sorts of possibilities and interests. Since the liklihood of a merger is better than equal chances for 2011, management also may want to have signed contracts, especially with the pilots and stews, so it or the merging partner may have better chances at securing credit.

Therefore the very real question may in fact be, why settle before 2014? This is a huge mess indeed and you can't blame the company for this mess, only the union.

 

[roabilly]

I would suggest we refrain from negotiating increases in company contribution levels. Keep the IAM pension as is, it is what it is, and not a worthy thing to sink increased levels into. Also, it is quite clear that the IAM trustees used the "A scalers" to not only take a future defined benefit hit but also to subsidize the B scalers and the B- scalers. Only the "A" scalers were affected. In fairness, it should have been a shared concession across all plan participants but politics and pending elections probably played a role.

And what about negotiations? If you settle before 2014 then you will be taking a huge concession on your future pension. If a new agreement is reached in 2011 then the participants will need about a 75 cent pay increase just to offset the pension cut if settled before 2014. God forbid we branch the future defined benefit by drunkenly sinking increased company contributions to blow more smoke up the workers collective arses.

IMO, the IAM may want to settle a new contract rather quickly so the IAM trustees won't have to wait till 2014. If a fair contract can be reached then great, but if it comes by taking money out of one pocket and putting it in another then there will be difficult times indeed. Throw in a potential UA merger, as opposed to AA, and there are all sorts of possibilities and interests. Since the liklihood of a merger is better than equal chances for 2011, management also may want to have signed contracts, especially with the pilots and stews, so it or the merging partner may have better chances at securing credit.

Therefore the very real question may in fact be, why settle before 2014? This is a huge mess indeed and you can't blame the company for this mess, only the union.

Hmmm...

I like the way you think Janitor... These will be interesting negotiations indeed!

May I suggest comprehensive M&A language?

 

[The Janitor]

Hmmm...

I like the way you think Janitor... These will be interesting negotiations indeed!

May I suggest comprehensive M&A language?

Comprehensive indeed. However, much M & A language that guarantees representational rights or other guarantees have been punted by Judges to the NMB as 'representational issues' and therefore have lost their teeth and eventually been dismissed out of contracts by Judges. Even arbitrators have ruled against M & A language when a company takes a dogged position against it. The old PSA case and old Western Airline case come to mind. Never mind change of control clauses, less we talk about this airline.

Not saying there 'aint no good' language that shouldn't be incorporated but I am saying 'we has better knows what the hell we are signing this time'.

 

[john john]

John john

Only the fleet for U.S Airways out of your above mentioned groups were on the Pension A group. UAL and Mechanics were already on the B group for the pension. Only people that were on the A group gets affected by this cut. They are basically bringing us all down to the B group.

Those groups that got into the pension before April 1, 2003 were in the A group. Those that got in after that date, were B group. As far as I understand it.

When did the IAM USAirways mechanics and related join the IAM pension fund?

 

[Real tired]

When did the IAM USAirways mechanics and related join the IAM pension fund?

April of 2008.

 

[Real tired]

Oh, by the way, the IAM pension fund that you so much desire, is in endangered status.


The letter we got.

The next stop is the PBGC, and if that's the case, it's worth 35 cents on the dollar.

Enjoy.

 

[roabilly]

Oh, by the way, the IAM pension fund that you so much desire, is in endangered status.


The letter we got.

The next stop is the PBGC, and if that's the case, it's worth 35 cents on the dollar.

Enjoy.

Please Read!

After reading the contents of the above link... I would like for anyone to provide a comprehensive solution to the Fleet Service retirement dilemma!

Any takers?

 

[Real tired]

Unfortunately, the Fleet Service retirement "dilemma" is now our (Maintenance) dilemma also.

I tried to explain that to my apathetic, yes voting coworkers when they overwhelming voted to eliminate the company 401K match money, which was the best free money we ever had, in favor of the IAM pension and a $2.00 per hour raise.

After our pension plan, and don't forget the pilots pension plan, was placed in the PBGC during bankruptcy, many of us had visions of a hammock between two trees and a new F-350 sitting nearby with the monthly income of the IAM pension. They sold it to us, and we bought it, hook, line and sinker. And now the truth comes out.

As the IAM membership declines, so does the health of OUR pension plan. And I feel the only "solution" is to not rely on this plan to carry you through your later years. Use any extra pennies you have and add it to your own personal 401k plan, diversify your portfolio, and pray that the economy turns around before it's too late.

 

[john john]

Unfortunately, the Fleet Service retirement "dilemma" is now our (Maintenance) dilemma also.

I tried to explain that to my apathetic, yes voting coworkers when they overwhelming voted to eliminate the company 401K match money, which was the best free money we ever had, in favor of the IAM pension and a $2.00 per hour raise.

There are many within the IAM that thinks the IAM pension fund is the best way to go. Self-containment within the IAM.Because of the variability of the IAM pension due to membership decreases to stop participating in it will be a hard sell to the IAM leadership

 

[28L_or_10R?]

Something takes a part of me
Something lost and never seen
Every time I start to believe
Something's raped and taken from me -korn "freak on a leash"

hey, i'm just sayin'...

 

[roabilly]

Comprehensive indeed. However, much M & A language that guarantees representational rights or other guarantees have been punted by Judges to the NMB as 'representational issues' and therefore have lost their teeth and eventually been dismissed out of contracts by Judges. Even arbitrators have ruled against M & A language when a company takes a dogged position against it. The old PSA case and old Western Airline case come to mind. Never mind change of control clauses, less we talk about this airline.

Not saying there 'aint no good' language that shouldn't be incorporated but I am saying 'we has better knows what the hell we are signing this time'.

Janitor...

Reading your posts are a continuing education... and yes... we better make damn sure what we are signin'!