401k contribution vs. Pension B fund contribution?

[Beetle007]

Obviously some airlines only have a company "match" for the 401K, but how is a contribution to a 401K different than a contribution to a Pension B fund? Is one better or worse than the other.

A 401K gives me control over my money and how my money is invested and I can easily take a 401K from one company to another. So...why would I ever want a Pension B fund?

 

[DTW320]

Obviously some airlines only have a company "match" for the 401K, but how is a contribution to a 401K different than a contribution to a Pension B fund? Is one better or worse than the other.

A 401K gives me control over my money and how my money is invested and I can easily take a 401K from one company to another. So...why would I ever want a Pension B fund?

This may not be what you meant.....but, to be clear, whose contribution are you referring to? The biggest difference is that contributions to a 401k typically consist of your own money that you elect to contribute plus any employer match, while a B-Plan (MPP or Money Purchase Plan) is money your employer contributes above and beyond your earnings. Again, you probably know that and this is not what you meant but it wasn't clear if you knew that. A B-Plan (at least mine) allows you to control how your money is invested just like a 401k.

 

[Beetle007]

A 401K can have a company contribution just like a Pension B plan. For example, my wife gets a 5% company contribution to her 401K and a 3% match. If she puts in 3%....the company puts in 8%.

According to some info I have found on the internet, you can only take 1/3 of your Pension B fund as cash when you retire. The other 2/3rds must be used to purchase an annuity of some sort? Is this true?

I could understand if a union wanted a B plan due to IRS limits on annual contributions to a 401K. But I don't understand unions that want a small 401K contribution and a larger B fund contribution. For example, airlinepilotcentral says that Delta has a 2% 401K contribution and a 9% B fund contribution. Why even touch a B fund until the 401K contribution is maxed out.

 

[CesnaCaptn]

...and then you have Alaska who has a "B-plan" which is actually a 3% contribution to our 401(k). Theoretically that decreases the amount of money I could contribute to the 401(k) because of IRS limits. We can also take half the value of our A-plan as a lump sum and the rest as an annuity (if it's there in 30+ years when I reach retirement age).

 

[SkiFishFly]

I may be mistaken, but the B plan contribution is made by your employer and is not subject to annual contribution limits.
401k contributions are subject to an annual contribution limit.
Our B fund and 401k contributions end up in the same pot/account. There are several investment choices.

 

[CitationLover]

I may be mistaken, but the B plan contribution is made by your employer and is not subject to annual contribution limits.
401k contributions are subject to an annual contribution limit.
Our B fund and 401k contributions end up in the same pot/account. There are several investment choices.

You are mistaken. There are combined limits (employee and employer) that limits the total amount of money being allowed to enter a defined contribution plan. See IRC 415(c):

http://www4.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000415----000-.html

 

[ualdriver]

Obviously some airlines only have a company "match" for the 401K, but how is a contribution to a 401K different than a contribution to a Pension B fund? Is one better or worse than the other.

A 401K gives me control over my money and how my money is invested and I can easily take a 401K from one company to another. So...why would I ever want a Pension B fund?

According to some info I have found on the internet, you can only take 1/3 of your Pension B fund as cash when you retire. The other 2/3rds must be used to purchase an annuity of some sort? Is this true?

Not true for any of the legacy carriers that I am familiar with. At my airline, for example, there are some annuitization options if one desires, but one is probably better off just shopping the open market for annuity products then just choosing what your airline has to offer. Once you leave the airline, you can keep your B fund where it is, roll it over into an IRA, roll it over with your new employer, etc., etc. And of course when you retire, you can do what you want with it.

I could understand if a union wanted a B plan due to IRS limits on annual contributions to a 401K. But I don't understand unions that want a small 401K contribution and a larger B fund contribution. For example, airlinepilotcentral says that Delta has a 2% 401K contribution and a 9% B fund contribution. Why even touch a B fund until the 401K contribution is maxed out.

There are overall limits to contribution to these types of plans. I think for us the 415 limit is $49,000ish total this year (it might be $49,900). Anyway, back in the "good old days" of the late 90's and early 00's before the downward spiral started, 415 limits would be hit by widebody Captains and they would get their B fund contributions in cash, taxed unfortunately at their nominal tax rate. That's not a problem anymore

The reason why pilots desire a B fund is because, with the legacy pilots for example, the company will put a percentage of your gross earning into an account with your name on it, regardless if you personally contribute to a retirement account or not. With a matching 401(k), the pilot has to usually put some amount of money in the pot in order to get the match. There are people at our airline who do not contribute to their 401(k), so with the B fund, they're going to get something put into their retirement account even if they elect not to put of their own dollars in.

Further, I'm pretty sure that with 401(k)'s, highly compensated invidividuals may be limited as to how much they can put in their 401(K) if lower compensated employees don't put "enough" in under the eyes of the law. I'm pretty sure B fund contributions are not restricted by that limitation.