Just to clarify, the A funds can also include various other facets, roll over to an annuity, lump sum, etc.
The B fund (at least at my company) is separate than the 401K.
A 401K is your money, company may match to various degrees. The B fund is a flat percentage amount that the company contributes (generally based on gross earnings, although several out there do not include any provision for things like overtime flying (if the contract allows it) and some are limited to some income cap) to a separate fund that you then invest as you see fit. Can vary depending on plan choices, etc.
So where does the 5-6 million dollar retirement money estimate come from for those that fly for a major for 20 yrs and retire. A or B fund and how do they calculate how much you will have at retirement?
If you spend only 20 years at a Major I don't think you will be looking at a 5-6 million retirement (unless maybe you count 401k in addition to the A and B fund). People that have over thirty years with a major can look forward to that type of retirement payout.
At UAL the company contributes %11 percent of your annual earnings to an investment fund of your choice. So obviously the longer you are with a carrier the better because your seniority will allow you to fly the biggest airplanes in the left seat (highest salaries, thus more money to your B Fund).
At UAL A fund is determined by the following equation:
1.41% X FAE X years of service = A fund
FAE = Highest paid 36 consecutive months of last 120 months.
years of service max out at 25. So anything less than 25 years of service starts to take a bite out of that fund.
Not every airline is the same. It all depends on their particular labor contracts. Some Airlines only have an A fund. Some only have the B fund and some have both the A and B fund. While others only have a 401k in which the company will contribute a percentage of your earnings, but with all 401ks you must self contribute a certain amount of your pre-tax earnings in order to get the company match.
Both funds are dependent on longevity with the airline, and both funds will pay out more with more years, but for different reasons.
The A fund is determined by some sort of formula that involves longevity, highest pay earned, and life expectancy. The main variable at different airlines is how the highest pay earned is figured. At my airline, its the highest 60 months (5 years) - so it obviously pays to go widebody sometime in your last 5 years. Your A fund will pay you more if you fly as a 777 Captain your last 5 years than if you fly as a 737 Captain. In order to get to be a 777 CA you have to be with the company a long time, obviously.
The B funds rewards longevity with the beauty of compound interest. Ours is 11% of pre-tax earnings, put into a fund managed by an independent company. If you want to manage your own money, you can do the 401(k), subject to federal limits. The beauty of the B fund is this (all done with a calculator by hand on a long, boring San Salvador turn): With conservative estimates of static wages at today's rates and 8% annual growth, by year 10 the growth of your B fund outpaces company contributions. The difference becomes larger as the years go on, until by year 25 the growth is $100,000/year, while company contributions are still 11% of your salary. The longer this money grows, the more you will have at the end.
The same goes for the 401(k). The money goes in pre-tax, and grows tax-free. A few thousand more dollars now will be worth more than almost anything you can shovel at it when you're 55. If you can afford to max out your 401(k), do it as soon as possible. You'll be amazed at the results.
One thing that many people don't realize is the value of the Roth IRA compared to the 401K(with no matching). It is better to max out the Roth IRA before the 401K. One thing to keep in mind is you can't contribute to the Roth IRA above an AGI(adjucted gross income)of around 150K. I'm not there yet, but maybe soon