32 year DAL dies, pilot contract...

[macfly]

My father recently passed away after recoverying from a bypass surgery. He had flown for delta for 32 years and was 2 months away from retirement. He did not get a chance to offically retire and his family is now out OF ALOT of money. ?I'm not even talking about the monthly anuity...That's not an issue. Pilots get a LUMP SUM and a montly anuity upon retirement.

DAL contracts stipulates that you must "offically" retire before you become eliglible to recieve these benefits. My question is; what happens to these families if unexpected misfourtunes happen such as this?

Thanks in advance,

macfly..

 

[macfly]

oppps sorry maybe this was the wrong area to post, i just saw major and went for it..

Newbie I be...

macfly

 

[Caveman]

First of all please accept my sincere condolences on your father's passing. Our prayers are with you.

One of the advantages of our 'commuter/regional' retirement at Comair is complete portability. We are fully vested in two years and when we go the money goes with us. Whether we die or quit the money in the 401K and the separate company funded retirement portion is ours. Granted it isn't as much as a mainline defined benefit plan but what use is that if you never get to take advantage of it.

Some of our pilots have run the numbers and if a 25 year old newhire contibuted the max to his 401k, that along with the company match and company retirement contribution he would have in excess of $4 million at age 60 retirement. If he were to die two months prior to retirement his estate would still have that same $4 million. Even at a modest 4% withdrawal rate of $160K per year one can live pretty well and still almost guarantee to be able to maintain the $4 million in assets for the rest of your life and pass it on to your heirs. There are, of course, some tax implications.

 

[RJones]

Sorry to hear that.

Did he have life insurance? Was he vested in his pension?

RJ

 

[profile]

First, in regards to the question, contact the Delta ALPA MEC retirement committee and they'll sort out the details. I'm sure that this is covered.

As for having all the money in a 401k, etc, that might be a good deal depending on how the market does during your tenure. With 30 year negative trends in the market history it could be less than pretty. The qualified A plan is worth it's weight in gold if that happens. Best to to have the two balanced at the very least. I would personally, and without having more data, say the Delta retirement is probably worth a bit more than any regional out there, and that their retirement committee has dealt with this situation in their contract.

 

[rjcap]

Profile,

With 30 year negative trends in the market history it could be less than pretty.

Which 30 year negative trend are you referring to ????

Thanks

 

[profile]

If you look at the history of the market you'll find several points that, if you bought at that point, you would be net negative or neutral 30 years later. Much of the time it has been relatively flat. Unfortunately, most people only are aware of what the market has done in the past 20 years or so (in fact, many on this board are too young to have known anything else!), but, as they say, "past performance is no guarantee of future performance"! There really is no way to predict what will happen in any given period. The market is nice, but a qualified A plan can be better.

It is intersting to note the different philosophies within the carriers retirement committees. Some have felt pretty confident with the market, and perhaps less confident with their employer by going mostly with the B-fund (AA, UA, UPS), while others have historically leaned towards the A fund (Delta, NWA, USAir).

For myself, it seems a balance is best. I don't want all my retirement to be in the market with uncertain outcome (I don't feel I can predict that there won't be some crash a year or two before my retirement that I can't recover from in time to retire), and I don't want to place everything with the company defined benefit plan either (even if I can roll it over to a annuity to better protect it when I retire).

 

[Wiggums]

There is no point since 1929 that I am aware of where the market wasn't up over a 30 year period. Even over shorter time periods, even in the worst markets, stocks eventually go up.

 

[profile]

Wiggims,

Suggest you take a closer look. No period that was negative? If you bought at the high point in 1929 you wouldn't have recovered for over 30 years. If you bought around 1965 it was flat until about 1980 or so also. Sure, it has been net negative, but if you look at the chart it goes up then goes flat then goes up again, etc. We just had a pretty good run up, do you know for sure that it won't flatten out for the next 20 or more years? Over shorter time periods it's even easier to find negative trends or zero growth.

Look for yourself http://www.lowrisk.com/djia100year.htm

 

[Mr. Irrelevant]

Profile (and anyone else)


Best not to refer to refer to the Dow for an accurate reflection of the stock market. The Dow only has, as most know, 30 companies in the calculation. The calculation is not cap-weighted, but equal-weighted. This means the smallest company in the Dow calc has the same impact as the largest. The S&P 500 is used by all Investment Managers in the U.S. and probably abroad to evaluate the performance of the U.S. Market. The S&P 500 being a cap-weighted index of the 500 largest companies (actually 498, with a couple foreign stocks included) in the U.S.

I ran some calculations using S&P 500 data from 1954(that was the farthest back my source went) to 2001.

The average yearly return was 13.49%.
The average 20 year return beginning in 1973 was 12.1%.
The average 30 year return begining 1983 was 12.16%.
The lowest 20 year return was 7.77% in 1978.
The highest 20 year return being 18.56% ending 1999.

30 year, the range was much narrower; 10.72% ending 1984 and 14.87 ending 1999.

I did not run any distributions on the data and it is a sample of data so there is a standard error not reflected in calculating an average. However given the differences in the markets of today to the markets on 1929 (information flow worldwide travels probably a million times faster or some outrageous factor) I believe there is more significance to the last 45-50 years than the last 80-85 years.

The point is there can be a reasonably good expectation the indexed U.S. S&P 500 market will return within a relatively certain range of returns over a period of time. Invaluable information when planning a retirement strategy.

As for preservation of income using the financial markets, diversifying and moving portions to less riskier areas of the market should allay fears for anyone that an equity market crash or downturn will significantly affect their retirement.

Knowing these facts makes me far more trusting of the market for my retirement $$$ than a pension plan funded by an employer. I don't know the laws involved with these fund A's or B's the airlines offer so I don't know if one has more risk of becoming insolvent in the case of a corporate meltdown.

I do know that the Dow is ABSOLUTELY the wrong index to use when evaluating the health of the market and the wrong index to use in planning retirement. It just happens to be widely quoted for the last century or so (I can't recall it's inception) and it's what the general public understands for the barometer of the equity markets performance but no professionals use it.

I don't mean to be a preacher and I probably make a lousy one but refering to the Dow is just wrong. Like refering to only a couple airlines to tell everyone the health of the airline industry.


Mr. Irrelevant

 

[profile]

OK, good point about the Dow vs S&P 500, but now I will return the volley with a question: What happens when you apply standard discounting to account for inflation during that time? How does that then compare to the average returns of A-funds? Also, you're assuming that your pilot-investor at least makes S&P 500 returns. Virtually no funds do that on average, and most pilots are not aggressive enough to put all of their money in funds that have a chance of doing that for the entire term (20 years in your example). Likely have to use some weighted average at the very least and then adjust that for SAP discounting. What's clear to me is that the problem is not quite so clear cut. What I do know is that the actuaries that ALPA hired to work the numbers at some of the carriers came back with values that obviously led those MECs to negotiate for larger A funds and less or no B funds.

 

[Mr. Irrelevant]

Profile,


You asked "What happens when you apply standard discounting to account for inflation during that time? How does that then compare to the average returns of A-funds?"

I would assume an inflation rate over long periods of somewhere around 3%. Looking at those equity returns for the S&P 500 would simply reduce them by 3%. After inflation, maybe the returns is around 9% or so. Obviously there were some times, particularly in the early 80's where inflation ran near the high teens however I believe the 3% average is reasonable.

"A" funds I do not know the average return of. I also don't know if that is invested money or simply a standard pension fund where years of service and salary are applied to a graduated rate of funding by the company. It would surprise me based on the stinginess of the management of airlines that they would be offering a standard return of 15% per year say on money in an "A" fund. Those types of returns probably exceed the company's cost of capital. Possibly even 12% does.


On the second point of --- "you're assuming that your pilot-investor at least makes S&P 500 returns. Virtually no funds do that on average, and most pilots are not aggressive enough to put all of their money in funds that have a chance of doing that for the entire term (20 years in your example)".

-Getting returns that match the S&P 500 is actually pretty easy. That's what S&P 500 Index funds are for. The fees on these are very small as well. Usually no more than 25 basis points a year, if that. The Investment Manager has very little overhead in managing these funds. The large firms that run these funds save transaction costs by crossing trades with other funds in the firm.

As for beating the S&P 500, you may be refering to active funds that attempt to do so. I've heard that about 20% can beat the market consistently. I doubt that's exactly the number. Skill of the analysts and portfolio manager have alot to do with that. If a person, doesn't have to be a pilot, can stomach the extra risk they can use indexed growth and value funds and beat the S&P 500 over a long period of time. Same with Small Cap Index Returns. However they have significantly more risk in a single year than the S&P 500 and aren't really being benchmarked against that index.

I had info on the S&P Barra Growth and Value since 1975;

The annualized return for the S&P Value was 15.65%
The annualized return for the S&P Growth was 13.80%.

This really isn't a long enough sample period in my opinion. I did read of a study conducted fairly recently that compared the value and growth return streams since 1960 or so and found mean returns around 15-16% for both, with Value the higher one with only a little more risk. Again, a person has to have the stomach for the varying returns as well as faith in the factors behind the strategy. These aren't strategies where trying to time the market is particularly wise. But, I believe they are good for diversifying a portfolio over the long run. And that includes the years after 60.

High and low returns for the Growth Index over that period were 42.16% and -22.08% in 1998 and 2000. In the Value Index the high and low were 43.38% in 1975 and -11.71% just last year.

I think the actuaries are in somewhat of a difficult spot. So many pilots are at those airlines for varying degrees of time. I would think that if the "A" funds are set up to be heavily weighted on the back-end after long periods of time with the company, then the pilots there the longest really benefit whereas a pilot who has even 15-20 years with the company may be better off with a 401k type of program that allows for choice in their retirement investments. Again, I don't really know how those plans are designed or the particular goals of the plans. It just seems to me that those plans are difficult to design for the betterment of all participants. And I trust myself with my investments more so than I do most others that don't have my same investment values.

I'd need more education in those plans to evaluate with more certainty which I'd favor. I get the idea based on a few of the things you mentioned that those must be conservatively designed. In which case, actuaries or whomever, probably don't want to take the risk that I would. Actuaries I really wouldn't have much stock in when it comes to understanding the efficiency of the equity markets. VERY smart people but not professional investors.

Yes, this was way too long. Let me know more about these "A" and "B" funds if you can post it on this board. It would be very educational and certainly help me decide which avenue to follow in aviation if I do indeed take the plunge as I expect to in the next year or two. Thanks.


Mr. Irrelevant

 

[profile]

I think it is also still important to note that the short term may torpedo your long term planning. Over the last 2 years the S&P 500 dropped 20% or so. Would be quite the drag to have to punch out now with all your planning based on those more rosy returns. I still think the balanced approach is a better way to go. For your info on the funds, see the thread that is titled a and b funds or what ever it is.

 

[stingray]

We are all sorry for your loss. I fear the time I will lose my father who is retired Eastern
As one of the previous post suggest try to contact one of the ALPA Union reps at delta. I am sure someone on this site can get you the information that you will need.
There is probably something in the contract that will help your family especially after 32yrs of service

 

[acaTerry]

Too Bad...

Macfly,
First we all want to express condolences for you. My little sister has brain cancer and it's a bad one. I know how you feel. I can't believe that DAL would be so selfish, heartless, and rotten. You know the press would have a field day with this. If it was me, the news would have a great story.
Talk about your penny-pinching management putting their own fat wallets first. DAL would not go out of business by giving a family what the EARNED. You all missed out on countless years of life with your father from his being a pilot. DAL got more from him than they deserve. And now in the wake of tragedy they find it necessary to deny retirement pay over being 2 months short! No excuse! For the 32 years your father gave to DAL they OWE all of you that retirement pay. I'd love 5 minutes in a dark room with the pencil whipper who denied the claim...
Ba$tard probably will by himself another house with it.