32 year DAL dies, pilot contract...

[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.