B Fund

[IFLYASA]

I'm not too sure how the B Fund works. Let's say if the company gives you 10% into a B Fund, and you make 100,000$, then the company would put in 10,000$ into your B Fund. Now, is that just fixed or does it draw a rate of return over the life of the fund?

Thanks

 

[AA717driver]

B Funds are invested in certain funds that vary airline to airline. You don't control where they are invested (at least in AA's case).

To get control, you have to go with a directed account plan (like most of the Ch.11 residents). TC

 

[DornierPilot]

B fund

Our B-fund (7% of earnings) is deposited into a Vanguard account monthly. We get to choose from several different funds and can move the money around within these funds as we see fit.

 

[catIIIc]

Our B fund(CAL) goes into a Schwab account that we control just like our 401(k).

 

[schmitty340]

our B fund (UPS) is 12% deposited into a Fidelity account that I control like a 401K.

 

[Truckdriver]

Most B funds work just like a 401K account. Some of the differences are you cannot put any of your own money in it, there is no limit as to contribution amounts on an annual basis, and you also have access to a B-fund whenever your employer considers you retired. So you can punch out at age 50 and use a B fund without the 10% penalty you would get if you only had a 401K to retire on. That is one problem with the new JetBlue 10% retirement. It all goes into the 401K so if we want to retire early, we have to have something other than our 401K. If we had a B-fund, we could use it.

 

[Lear70]

A B-fund is a defined CONTRIBUTION plan (an amount given to you each payroll period as a percentage of your income), versus an A-fund or a defined BENEFIT plan (traditional pension that guarantees a benefit, regardless of amount invested during your employment).

The difference is in the word in CAPS above. Defined CONTRIBUTION means they are guaranteed to contribute a certain percentage of your income into your plan account each payroll period. This keeps them from robbing the kitty, so to speak, as the money is out of their control every pay period (twice per month for us), and into OUR account and no longer theirs to touch.

How is the B-fund contributed and how does it affect your tax liability year by year? That is a critical thing to understand, as your tax liability might very well be lower in the future than it is now... or it might be the exact other way around.

Each B-fund at each airline is a little different. The financial accounting rules it's administered under all have their pros and cons, as previously mentioned. You have to figure out what airline you're talking about specifically.

Here at AirTran, it's 10.5% and it's put into your Fidelity 401k account which you can manage any way you see fit. You aren't fully vested until year 5, but you can control the investment mix just like you would your own individual contribution which makes it an EXCELLENT plan - I like a little control over my investment mix as I can plan a little more aggressively than my older coworkers closer to retirement.

The downside is that there are caps on 401k contributions each year (as a function of a percentage of your income). So if you're a "max out my 401k" kind of guy, the company's 7, 8, 10, or whatever percent counts against your own desire to contribute the maximum of your paycheck into your 401k, IF their B-fund is a 401k rule fund.

The up-side to this whole equation is that even if your company goes bankrupt, they can't rob your 401k (ever) or B-fund monies (in most cases), even if the company liquidates, like they did with the A-fund (traditional defined BENEFIT pensions).

When ALPA goes back after the Legacy carriers that bit WAY too much off during bankruptcy, the smartest thing they could do would be to concentrate any retirement plans as B-fund plans, and not try to get back traditional defined benefit pensions... but I digress.

 

[catIIIc]

So at Airtran the max you get a year for retirement is the 401(k) max?

 

[SkiFishFly]

I'm not so sure that is correct. I thought the 10.5 percent does not count against the IRS max for a 401K.
At AAI we can add a percentage of our choosing to the plan over and above what the company puts in. Your statements show clearly what amount you are "vested" in. The Company money is not yours until year 5.
I think you are allowed to add up to the max IRS allowed 401k contribution over and above the amount the company puts in.

 

[Lear70]

So at Airtran the max you get a year for retirement is the 401(k) max?

No, it counts TOWARDS the max, from my understanding, before you are taxed on it.

You can contribute whatever you WANT to your 401k, but anything over 24% (for this year) is no longer pre-tax dollars.

For instance, AirTran contributes 10.5% of your salary. You can contribute another 13.5% and that 13.5% will be taken out pre-tax.

If you contribute more than the 13.5%, your total 401k contributions (company included) now are more than 24%, and anything over that is supposed to be taxed.

That's how it was explained to me. However, I'm not a tax expert.

Ski, if you have information to the contrary, please let me know. I'm not at a high enough income yet here to withhold much (that won't come until year 4 F/O rates at our current book), but it would be good to know for future use.