A Plan, B Plan?

[Quiet Flight]

Could somebody explain what an "A" plan is and what a "B" plan is? Differences? If there is a thread out there with this info in it, just point me to it.

Thanks



.

 

[LarryinTN]

An A plan is a defined benefit plan. It specifies how much you will receive in retirement, usually based on a multiplier and your years in service. i.e. 2% x years x final average earnings = yearly benefit. The company assumes all investment risk as they must fund the plan so that it has the assets to pay the promised benefits. The problem is that the money is not the employee's until he receives it in retirement. The A plan is just a contractual promise that he will be paid as described and that promise can be changed, frozen or broken.

A B plan is a defined contribution plan. i.e. the company will deposit 11% of your gross pay into the plan. The employee assumes all investment risk as the company's obligation is just to deposit the promised amount into the account. Once the employee is vested, usually after five years of employement, the money in the account is his and can't be taken away. It's the employees responsibility to predict how much the B plan will provide in retirement and plan accordingly. There are no claims made as to how much income the plan will produce.

 

[PurpleTail]

try this link too

http://forums.flightinfo.com/showthread.php?t=54904&highlight=A+plan+retirement

Here is another thread on A plans.

 

[Big Beer Belly]

The A plan is just a contractual promise that he will be paid as described and that promise can be changed, frozen or broken.

While that may be technically accurate it leaves the reader with an incomplete understanding. Unilaterally speaking, A plans can only be "changed, frozen or broken" in bankruptcy. Outside of bankruptcy, these plans are altered only through mutual agreement (i.e., labor negotiations.)

As long as a company is "financially sound", federal law mandates a minimum funding level for A plans. (WARNING: You are entering complex law here.)

BBB

 

[Quiet Flight]

Which plan comprises the "Big Payout"? Would you have the option to take either of these a lump sum payment?

 

[Falconjet]

QF: The A fund is a pension. 2.5% for every year you work times your final year average (FAE = average of your 5 highest years), with a cap at 50%.

So if you make 190, 195, 200, 205 and 210K for your high 5 years, your FAE is 200K. If you work 25 years your percentage is 50% (25 X 2.5%).

Your A fund benefit is 50% X 200K or 100K per year, which gives you a pension of $8333 per month before taxes. No lump sum option currently at FedEx. There is a survivor benefit option that allows you to take a reduced amount (say 6500 per month) and would then pay your surviving spouse an amount until they die (say 2500 per month). These figures are just examples. The FAE and 2.5 per year are actual numbers.

The B fund is like a money market account in your name. Each month the company deposits an amount equal to 6% (at FedEx) of what you made that month into an account with Vanguard in your name. You own it and can determine where you want to invest it (small group of funds). After you are vested it is yours when you leave the company or retire. It is like getting a 6% bonus each month put into an account for you.

FJ

 

[Quiet Flight]

Thanks fellas. Appreciate the info.

 

[Scrapdog]

Really good breakdown FalconJet - thanks for the info...I was curious as well.

 

[Gummo]

Taxes

Is the B-fund contribution tax deferred? If so, is it kind of like a 401k, except without a employee contribution? That is to say, are the taxes are deferred until funds are withdrawn, penalties for retirement age, etc?

 

[pilotyip]

Plan A is to get hired by FedEx, Plan B is to go to work someplace else if the FedEx thing doesn't work out, Plan C is to become an FAA inspector.

 

[Big Beer Belly]

Is the B-fund contribution tax deferred? If so, is it kind of like a 401k, except without a employee contribution? That is to say, are the taxes are deferred until funds are withdrawn, penalties for retirement age, etc?

YES to all.

Additionally, most unions negotiate an ability to have a "brokerage" account for your 401k and B plan funds. This ability then allows you nearly unlimited investment choices (some investment options restricted by law in qualified retirement accounts.)

BBB



PS. Forgot to mention that 401k Roth options may be available at your company as well. If that is the case, and you choose that option, your 401k Roth employee contribution will be "after tax" money, but your employer's contribution will be "pre-tax" dollars. Effectively, two separate accounts with different tax implications, but both will see principal grow tax deferred.

This can get confusing but a little research now COULD have significant ramifications now AND later in terms of taxes and overall wealth. Seek out a professional financial advisor if in doubt. YMMV.

BBB

 

[SWA/FO]

Some folks are on PLAN D.

 

[StaySeated]

With a few exceptions, A plans are pretty much extinct in the industry.

 

[Falconjet]

Is the B-fund contribution tax deferred? If so, is it kind of like a 401k, except without a employee contribution? That is to say, are the taxes are deferred until funds are withdrawn, penalties for retirement age, etc?

Kind of, except that it is 100% company paid. There is no match per se, they contribute the entire amount. It is equal to (at FedEx anyway) 6% of what you make each month, but it is an additional 6%, not 6% that you have to contribute and then have the company match.

If you make 6K that month, the company will put 360 additional dollars into your B fund account.

FJ