It's a race, but where is the bottom?

[skyboat]

Singlecoil-

Comair has a defined contribution plan for it's pilots. Air Wisconsin has a retirement plan, not sure if it's a defined benefit or contribution. Mesa just had a TA, any word on retirement there?

With the regional airlines getting larger and larger and having more and more carreer pilots, it is only natural that you will see more and more retirement plans. Probably not defined benefit plans as these were mostly created during the early 1970's during times when the tax codes were more favorable to them. Another added benefit is that the pilot controls the plan and can take it with them if they leave or a company shuts down during hard economic times.

 

[Mr. Irrelevant]

singlecoil/flywithastick,


SWA has a retirement plan!!! It is a 401k plan, often refered to as a defined contribution plan. The plan pays the employee a dollar for dollar match up to the first 7.3% of the employees pay when the employee elects to defer their income into the plan. This is a fantastic retirement plan! The advantage is that the money is the employees to keep and not subject to the company reducing the benefit amount if the company cannot keep the traditional pension plan funded adequately. See what is happening with the U.S. Airways pension plan for a good example. The other advantage is that you will have control over the investments your hard earned dollars are placed into.

SWA also has a profit sharing that varies based on the company's earnings that year. I believe some pilots here have said it is generally 10-15% of salary.

JetBlue also has a 401k plan however I do not know the specifics.

I think singlecoil made a good point in his first post in regards to the proliferation of RJ's causing ATC logjam issues. This was a serious issue that was getting national attention prior to 9/11. The pressure will really be on the airline's management teams to use larger aircraft when the economy is on better footing. And given the way these companies make money when the economy is healthy I believe we'll see them using larger aircraft. My biggest worry as a low-time future professional pilot is whether they will continue to simply add these larger aircraft at the so-called "regionals".

I think maybe two years ago I saw pay proposals at an airline adding 70 seat jets to their 50 seat jets that increased captain pay only by $4 per hour for 20 more seats. So for 40% more seats the proposed increase in pay was deplorable. If this was the case and the union accepted or had to accept the increase it seems forboding in regards to what the pay would be like if the regionals all fly 90 seat, 110 seat, 135 seat aircraft. I would be shocked if management at the airlines do not try and do something like that. They would be fools not to. I know alot of pilots may say their scope will prevent that from happening. From an outside of the industry perspective (I work in Investment Management full-time, CFI part-time) the airline management groups have run roughshod over those scope agreements.

I can certainly agree with anyone here who sees the contracts and working conditions improving at the regionals. Once people realize it is their final stop they will have greater resolve to improve their quality of life. Only makes sense.

I think the pay and retirement improvements will come at the smaller airlines, only it will take time. That Comair contract seems to be only the tip of the iceberg. I think from what I read it was a great improvement over what was existing and a impressive show of solidarity, however the benefits of it pale in comparison to what an employee gets at my firm and sadly some of the employees here couldn't learn how to turn a C152's engine over much less fly anything! Really, that bad and yet they get company funded pension and a 401k that are both better than what most regionals receive.

I wish good luck to all pilots and pilot unions in their quest for improved working conditions and pay. Particularly at the regionals.

Very good topic single. I was wondering when someone would bring it up.


Mr. I.

 

[Singlecoil]

Certainly not irrelevant comments from Mr. Irrelevant.
I agree that a 401K with a hefty company match (7.3% is quite good) is a good way to go for future retirement plans. But most majors today have defined benefit plans that will pay a pilot with 25 years seniority $100,000 or more for the rest of their lives, as well as additional 401K's. Those 401K's don't have a very high employee match, however.
I like the idea of generous profit sharing with lower annual wages for airline pilot compensation. This industry is cyclical, and always will be, and that model provides an excellent means for the company to ride out the rough times. When the company is making big money, so are you. There's no opportunity for the employees to develop bitterness at how much the company is making and they aren't. That bitterness leads to solidarity and powerful labor unions that demand high compensation. Then in the lean times like we have today, the companies go right back and ask for the money back to balance the books. With a profit sharing model, all parties know up front what the rules are during boom and bust times. There is no chance for discontent and distrust to form. In addition, all employees in on the profit sharing will feel a direct stake in the success of their company, which should translate into a positive customer service experience for the paying public. I don't think you would hear a pilot under that compensation model make statements that we need to "...choke the last golden egg out of the goose..." as Captain Dubinsky did at United.

 

[jetflyer]

Singlecoil,

Great points! I've thought forever that a very large profit sharing option is the way to go. Like you said it let's you prosper in the good times, helps the company in the bad, and gives everyone involved in the profit sharing incentive to work harder.

Are there any drawbacks to the very large profit sharing model. I'd like to see them twice as large as Southwest's to really work well.

 

[Mr. Irrelevant]

Good replies single and jetflyer. To see what an SWA pilot might have in their 401k after 30 years or so I threw some numbers in a spreadsheet and came up with what are probably very rough results.

I assumed the amount defered into the 401k is exactly 7.3% and that appreciation is not earned on that amount until the end of the year. Obviously this is not a real world scenario but I wasn't going to take the time compound monthly assuming a monthly deferral. I assumed annual returns of 9% per year up to 59 years old and 6% per year afterwards. For salary as a FO for 5 years I started at 38k, then 50k, 62k,74k, and 80k. I assumed upgrade in year 6 with salary at 135k rising 5k each year. Very rough estimates I'm sure but I didn't have a contract in front of me to review and pin down salary amounts.

The numbers; $3.1 million at retirement. That is in 2003 dollars though. Adjusting for inflation, I assumed 2.8% per year, I get over $1.3 million in today's dollars. Less than what was mentioned for major airline payouts from defined benefit plans. Those can change though from majors as is happening with U.S. Airways. The amount that one can withdraw from a 401k with those results though is on par with 100k payouts per year in 2003 dollars(taxes not included). None of this assumes the profit sharing has been invested either.

My numbers are just estimates on the yearly remunerations of course but I think the 401k, considering the control the employee has over it, is the better route. The 401k may not be the best for everyone depending on their own comfort level, financial situation or age.

Maybe someone else will chime in with another point of view. I look forward to reading it.


Mr. I.