More Wage And Benefit Cuts?

[Wretched Wrench]

Excuse me, SWA does not get a DEFINED BENEFIT PLAN like AA UNION members. They get a far less expensive 401k just like AA MANAGEMENT.

I wonder if anyone has run the numbers and compared a 7.3% matching 401k plan to what we have.

A plus for employees would be that the company couldn't weasel out of funding it once you had the money. There are lots of other plusses for the defined contribution retirement plan.

A plus (for the employers) of the defined benefit retirement plan is that they can weasel out of it and only have to pay it to employees who live to collect it.

 

[goingboeing]

Excuse me, SWA does not get a DEFINED BENEFIT PLAN like AA UNION members. They get a far less expensive 401k just like AA MANAGEMENT.

Excuse me but AA and several other airlines recently received an 18 month deferral from having to make any payments to the defined benefit pension plans.

I guess if AA management got rid of all of its employees it could make money.The employees wages and benefits are the reason AA cannot make money[Yeah,right!]

 

[Oneflyer]

AA contributed 150+ million in the first quarter to its penions, excluding 401ks. AA would be far better off if all employees were on a 401k plan and employee's retirement would be much more secure.

 

[Oneflyer]

AA contributed 150+ million in the first quarter to its penions, excluding 401ks. AA would be far better off if all employees were on a 401k plan and employee's retirement would be much more secure because they are protected during bankruptcy. After three years with the company its contributions are vested and they're yours. When the company cuts your salary, you can leave for a better, high paying job, because you're not tied to your pension.


Another thing that I'm surprised union membership hasn't figured out is that the pensions are probably far more underfunded than they appear. AA assumes a 9% return on the pension while being 35% invested in government bonds and 25% in corporate bonds. It would be almost impossible for the pension to return 9% with conservative investments dominating the portfolio. Say it only makes 7% going forward, the pensions are probably underfunded by several hundred million to a billion dollars or more, over and above what is reported. If you want proof(of the numbers, not my assumptions) check out AMR's annual report.

 

[kirkpatrick]

AA would be far better off if all employees were on a 401k plan and employee's retirement would be much more secure because they are protected during bankruptcy.

Sounds like it wouldn't be a bad idea for a new company or new employees, but what would be done with current employees who have worked under the current formula for x number of years?

MK

 

[Wretched Wrench]

Sounds like it wouldn't be a bad idea for a new company or new employees, but what would be done with current employees who have worked under the current formula for x number of years?

MK

I suspect any second year business student with a TI business analyst calculator could figure this out. I have also seen web sites that should allow you to work backward to arrive at a number.

A number of companies have converted to what they call "cash value" plans, and put a lump sum in a 401k for older employees. However, most of the companies have skewed their calculations to their advantage. You know, corporate greed. IBM comes to mind.

Maybe one of the MBAs on this site can calculate some equivalent numbers.

 

[Oneflyer]

Not knowing the specifics of the pension plans, I used my trusty excel spreadsheet to calculate a couple of senarios:

1. A person at retirement age, say 65, entitled to a yearly pension of $50,000 would get a lump sum of about $456,000. Assuming a 9% discount rate (the rate of return AA assumes for it investments) and assuming a 20 year life expectancy.

2. A person 10 years from retirement, assuming all the same factors would get about $193,000.

These are ballpark figures.


Didn't AA a couple of years ago switch from a pension plan to 401k for management. Maybe someone knows how they did it then, I believe each person had the choice to stay in the old plan or take the 401k. All new employees were only offered the 401k with 5.5% match.

 

[TWAnr]

How is it then that SWA pays their employees more than AA does and they still make a profit?

Don't forget cross utilization and flexible work rules that allow employees from different job classifications to perform the same tasks when necessary. They have far fewer employees per revenue passenger mile than American and other legacy carriers have.

 

[Wretched Wrench]

Not knowing the specifics of the pension plans, I used my trusty excel spreadsheet to calculate a couple of scenarios:

1. A person at retirement age, say 65, entitled to a yearly pension of $50,000 would get a lump sum of about $456,000. Assuming a 9% discount rate (the rate of return AA assumes for it investments) and assuming a 20 year life expectancy.

2. A person 10 years from retirement, assuming all the same factors would get about $193,000.

These are ballpark figures.


Didn't AA a couple of years ago switch from a pension plan to 401k for management. Maybe someone knows how they did it then, I believe each person had the choice to stay in the old plan or take the 401k. All new employees were only offered the 401k with 5.5% match.

Hmmmmmmmm..........An accepted rule of thumb is that if you draw down 4 to 5 percent of your lump sum yearly, it will last 30 years, if inflation and the stock market shows average readings, and if it is invested in a mix of stocks and bonds.

Given that rule, a lump sum of $456,000 would yield a yearly income of $18,360 at a 4 percent drawdown, and $22,800 per year at a 5 percent drawdawn rate. This is not quite the equivalent of your hypothetical $50,000 per year.

Or we could work backward, and multiply the $50,000 per year by 25 (the reciprocal of 4%) and come up with $1,250,000 as the amount that would be required to allow a $50,000 yearly income. Actuarial considerations would also have to be factored in, as few of us will live 30 years in retirement. Perhaps we should use AA's 20 year guaranteed period certain figure rather than the more popular lifetime annuity. But we are getting in to apples and oranges here, as I know of no "rule of thumb" for a 20 year drawdawn period. Anybody?

Another thought would be to shop for annuities and see what an annuity costing $456,000 would pay out for twenty years and compare it to AA's 20 year period certain amount. or what an annuity with a payout of $50,000 annually would cost.

How many of us would get $50,000 per year from AA's plan? I will qualify for much less, but doubt I will ever see it.

BTW, this is all offered as discussion more than disagreement. Let's keep it going.

 

[eolesen]

Oneflyer is correct -- -- management as well those hired into the non-union workgroups after a certain date (November 2000 comes to mind) were put into a 401K match plan. Employees in those workgroups who were in the defined benefit plan had the option to freeze their pensions and move over to the 401K. Most of the folks I know stayed with the pension, but also fund a 401K without the match (I do the same) just so that they have more than just one source of retirement income.

Question: if there were truly a concern over the security of a pension plan's assets in bankruptcy, wouldn't one of the major unions (ALPA, IAM, AFA) have tried to do something like move from a pension to a 401K match? TWU @ WN had no choice, since they don't have pensions at WN to begin with, but have unions ever proposed moving away from a pension and into a 401K?

 

[Wretched Wrench]

Question: if there were truly a concern over the security of a pension plan's assets in bankruptcy, wouldn't one of the major unions (ALPA, IAM, AFA) have tried to do something like move from a pension to a 401K match?

Good question. Perhaps they should have or should be. I would guess that they looked at what the company offered the non-union employees and thought they already had a better deal. At that time, few of us considered a bankruptcy (or even a threat of one) as a possibility. AA broke new ground on that one. Again.

I would guess that most unions, as well as most employees would prefer such a move if the numbers were equivalent. However, one person's definition of equivalent might not be another's. Additionally, this would have to be negotiated, and both the company and the union would try to gain an advantage, so it would be difficult. Aside from corporate greed, we would have dueling actuaries and financial experts. Most companies that have done this have tilted things their way. Again, IBM as an example. And, absent any acrimony or greed, it would be quite difficult to be fair and equitable to everyone.

However, a great many employees would tolerate a diminution of benefits if they could be sure of not having the company weasel out of their retirement commitments.

 

[TechBoy]

There is no question about the security of pension plan assets in bankruptcy. The assets are separate and will be preserved. But so will the underfunding. That is the rub. If the plan sponsor can no longer make the required contributions, then the plans will have to be terminated and turned over to the PBGC. The pBGC will pay out benefits at least equal to the PBGC minimums, or more if there is sufficient funds in the plans. The current legislation that give airlines the ability to defer some of their contributions over the next two years will only add to the general underfunding and will come back to bite the employees in the *** if the plans are terminated.

And the plans will need to be terminated, unless a miracle happens and biz flyers start buying $2k Y fares again in large numbers.

 

[Wretched Wrench]

The pBGC will pay out benefits at least equal to the PBGC minimums, or more if there is sufficient funds in the plans.

The PBGC has their maximums on their site, but I have not seen the minumums. Would you share any info you have on that?

I have understood that if an employee would have gotten an amount over the published PBGC maximum, he/she would then be entitled to the PBGC maximum.

We all need to know this stuff to plan, as our retirement is circling the drain. Except for Arpey and his 47 cohorts at the top. Theirs is protected.

 

[AAmech]

I can't belive some of this stuff I'm reading about how wonderful 401k's are!! You guys need to remember one little important fact. 401k's ARE SELF FUNDED!!!! REPEAT, SELF FUNDED, SELF FUNDED, SELF FUNDED!!!!!!! You are required to put YOUR OWN MONEY into it! Yes, some company's will give you a match but unless you SELF FUND your 401k you get a BIG FAT "0",ZERO, DOUGHNUT HOLE from management. If you work for a company that does not provide a defined benifit pension you will need to put aside around 20% of your check into your 401k if you would like to have any sort of comfortable retirement. That works out to a 20% paycut!!
Remember, Defined Benifit Pension is COMPANY FUNDED (in theory, at least)!
401K plans are SELF FUNDED!

 

[NewHampshire Black Bears]

Oneflyer is correct -- -- management as well those hired into the non-union workgroups after a certain date (November 2000 comes to mind) were put into a 401K match plan. Employees in those workgroups who were in the defined benefit plan had the option to freeze their pensions and move over to the 401K. Most of the folks I know stayed with the pension, but also fund a 401K without the match (I do the same) just so that they have more than just one source of retirement income.

Question: if there were truly a concern over the security of a pension plan's assets in bankruptcy, wouldn't one of the major unions (ALPA, IAM, AFA) have tried to do something like move from a pension to a 401K match? TWU @ WN had no choice, since they don't have pensions at WN to begin with, but have unions ever proposed moving away from a pension and into a 401K?

"EO",
Glad to see your still "lurking"

NH/BB's