B Fund

[IFLYASA]

I'm not too sure how the B Fund works. Let's say if the company gives you 10% into a B Fund, and you make 100,000$, then the company would put in 10,000$ into your B Fund. Now, is that just fixed or does it draw a rate of return over the life of the fund?

Thanks

 

[AA717driver]

B Funds are invested in certain funds that vary airline to airline. You don't control where they are invested (at least in AA's case).

To get control, you have to go with a directed account plan (like most of the Ch.11 residents). TC

 

[DornierPilot]

B fund

Our B-fund (7% of earnings) is deposited into a Vanguard account monthly. We get to choose from several different funds and can move the money around within these funds as we see fit.

 

[catIIIc]

Our B fund(CAL) goes into a Schwab account that we control just like our 401(k).

 

[schmitty340]

our B fund (UPS) is 12% deposited into a Fidelity account that I control like a 401K.

 

[Truckdriver]

Most B funds work just like a 401K account. Some of the differences are you cannot put any of your own money in it, there is no limit as to contribution amounts on an annual basis, and you also have access to a B-fund whenever your employer considers you retired. So you can punch out at age 50 and use a B fund without the 10% penalty you would get if you only had a 401K to retire on. That is one problem with the new JetBlue 10% retirement. It all goes into the 401K so if we want to retire early, we have to have something other than our 401K. If we had a B-fund, we could use it.

 

[Lear70]

A B-fund is a defined CONTRIBUTION plan (an amount given to you each payroll period as a percentage of your income), versus an A-fund or a defined BENEFIT plan (traditional pension that guarantees a benefit, regardless of amount invested during your employment).

The difference is in the word in CAPS above. Defined CONTRIBUTION means they are guaranteed to contribute a certain percentage of your income into your plan account each payroll period. This keeps them from robbing the kitty, so to speak, as the money is out of their control every pay period (twice per month for us), and into OUR account and no longer theirs to touch.

How is the B-fund contributed and how does it affect your tax liability year by year? That is a critical thing to understand, as your tax liability might very well be lower in the future than it is now... or it might be the exact other way around.

Each B-fund at each airline is a little different. The financial accounting rules it's administered under all have their pros and cons, as previously mentioned. You have to figure out what airline you're talking about specifically.

Here at AirTran, it's 10.5% and it's put into your Fidelity 401k account which you can manage any way you see fit. You aren't fully vested until year 5, but you can control the investment mix just like you would your own individual contribution which makes it an EXCELLENT plan - I like a little control over my investment mix as I can plan a little more aggressively than my older coworkers closer to retirement.

The downside is that there are caps on 401k contributions each year (as a function of a percentage of your income). So if you're a "max out my 401k" kind of guy, the company's 7, 8, 10, or whatever percent counts against your own desire to contribute the maximum of your paycheck into your 401k, IF their B-fund is a 401k rule fund.

The up-side to this whole equation is that even if your company goes bankrupt, they can't rob your 401k (ever) or B-fund monies (in most cases), even if the company liquidates, like they did with the A-fund (traditional defined BENEFIT pensions).

When ALPA goes back after the Legacy carriers that bit WAY too much off during bankruptcy, the smartest thing they could do would be to concentrate any retirement plans as B-fund plans, and not try to get back traditional defined benefit pensions... but I digress.

 

[catIIIc]

So at Airtran the max you get a year for retirement is the 401(k) max?

 

[SkiFishFly]

I'm not so sure that is correct. I thought the 10.5 percent does not count against the IRS max for a 401K.
At AAI we can add a percentage of our choosing to the plan over and above what the company puts in. Your statements show clearly what amount you are "vested" in. The Company money is not yours until year 5.
I think you are allowed to add up to the max IRS allowed 401k contribution over and above the amount the company puts in.

 

[Lear70]

So at Airtran the max you get a year for retirement is the 401(k) max?

No, it counts TOWARDS the max, from my understanding, before you are taxed on it.

You can contribute whatever you WANT to your 401k, but anything over 24% (for this year) is no longer pre-tax dollars.

For instance, AirTran contributes 10.5% of your salary. You can contribute another 13.5% and that 13.5% will be taken out pre-tax.

If you contribute more than the 13.5%, your total 401k contributions (company included) now are more than 24%, and anything over that is supposed to be taxed.

That's how it was explained to me. However, I'm not a tax expert.

Ski, if you have information to the contrary, please let me know. I'm not at a high enough income yet here to withhold much (that won't come until year 4 F/O rates at our current book), but it would be good to know for future use.

 

[AAflyer]

Gentlemen,
Is your B fund in a cash amount? Mine is in the form of units, I then take the current B fund (ie $123.00) then multiply that by the units I have from the company.

AA

 

[Lear70]

No, ours is strictly cash, deposited each pay period into the 401k account.

 

[AAflyer]

No, ours is strictly cash, deposited each pay period into the 401k account.

Thanks....

AA

 

[Lake Alice]

At Jetblue we don't have a B fund. If we did I would manage it well

 

[catIIIc]

Gentlemen,
Is your B fund in a cash amount? Mine is in the form of units, I then take the current B fund (ie $123.00) then multiply that by the units I have from the company.

AA

Ours is in Cash at CAL.

 

[BluDevAv8r]

No, it counts TOWARDS the max, from my understanding, before you are taxed on it.

You can contribute whatever you WANT to your 401k, but anything over 24% (for this year) is no longer pre-tax dollars.

For instance, AirTran contributes 10.5% of your salary. You can contribute another 13.5% and that 13.5% will be taken out pre-tax.

If you contribute more than the 13.5%, your total 401k contributions (company included) now are more than 24%, and anything over that is supposed to be taxed.

That's how it was explained to me. However, I'm not a tax expert.

Ski, if you have information to the contrary, please let me know. I'm not at a high enough income yet here to withhold much (that won't come until year 4 F/O rates at our current book), but it would be good to know for future use.

Uh....this is pretty much all incorrect. Percentages aren't taken into account when discussing the contribution limits...they are defined by dollar amounts (at least under the IRS rules 402(g) and 415). Any money contributed into your 401k plan by your company (whether it is a DC plan or 401k match) does NOT count towards the employee contribution limit of $15,500 for 2007 (plus $5,000 more if you are 50 or over). The only money that counts towards the $15,500 limit is money that you earn and defer on your own. The 10.5% you get at Airtran (or the 10% at CAL...12.75% in July), whether it goes to a separate B Plan account or to your 401k account, does NOT count towards the $15,500 limit.

However, there is a combined annual contribution limit and for 2007 that limit is $45,000 (or $50,000 if you are 50 or over). This limit applies to all contributions made under both the 401(k) as well as B-Plan (and any other Company defined contribution plans in which you have participated such as selling back unused vacation as well as profit sharing into the 401k, etc).

Hopefully this makes sense...if not, let me know what you don't understand and I'll do my best to answer it for you. I'm not a tax accountant or retirement expert but I have a little bit of experience with this stuff from some ALPA work I have done in the past.

-Neal

 

[Lear70]

Cool, thanks for the update. I was just reading directly off the plan materials which were mailed to me by the company.

"Any contributions greater than 24% will be withdrawn from your paycheck after all appropriate taxes have been withheld."

Possibly that may be that at my proposed income bracket, that is where I hit the $15,500 limit for this year?

Don't know, and it doesn't say. Like I said, not a tax expert.

Thanks for the correction.

 

[BluDevAv8r]

Cool, thanks for the update. I was just reading directly off the plan materials which were mailed to me by the company.

"Any contributions greater than 24% will be withdrawn from your paycheck after all appropriate taxes have been withheld."

Possibly that may be that at my proposed income bracket, that is where I hit the $15,500 limit for this year?

Don't know, and it doesn't say. Like I said, not a tax expert.

Thanks for the correction.

Lear,

2 things come to mind. First, the limits I spoke of are IRS limits. The actual plan itself may of course trump the IRS limits if that was what was negotiated by your union and the company. Secondly, you could very well be correct that the materials you received were based off of your projected income for the year. You would have to earn $64,583 for the year for 24% to hit the IRS limit of $15,500. But the verbiage you referenced above talks about contributions from YOUR paycheck...thus, it is not talking about the B-Plan of 10.5% that Airtran pays into your account.

-Neal

 

[TheBaron]

Our B-fund (7% of earnings) is deposited into a Vanguard account monthly. We get to choose from several different funds and can move the money around within these funds as we see fit.

...6% now. 7% starting January 2008.

 

[SkiFishFly]

Uh....this is pretty much all incorrect. Percentages aren't taken into account when discussing the contribution limits...they are defined by dollar amounts (at least under the IRS rules 402(g) and 415). Any money contributed into your 401k plan by your company (whether it is a DC plan or 401k match) does NOT count towards the employee contribution limit of $15,500 for 2007 (plus $5,000 more if you are 50 or over). The only money that counts towards the $15,500 limit is money that you earn and defer on your own. The 10.5% you get at Airtran (or the 10% at CAL...12.75% in July), whether it goes to a separate B Plan account or to your 401k account, does NOT count towards the $15,500 limit.

However, there is a combined annual contribution limit and for 2007 that limit is $45,000 (or $50,000 if you are 50 or over). This limit applies to all contributions made under both the 401(k) as well as B-Plan (and any other Company defined contribution plans in which you have participated such as selling back unused vacation as well as profit sharing into the 401k, etc).

Hopefully this makes sense...if not, let me know what you don't understand and I'll do my best to answer it for you. I'm not a tax accountant or retirement expert but I have a little bit of experience with this stuff from some ALPA work I have done in the past.

-Neal

This is what I was referring to earlier. Thanks for posting the exact dollar amounts.