Part 2

This article is the second in a two-part series on airline pilot retirement plans. It is written from a pilot's perspective.

In this second part, Defined Benefit plans-- more popularly known as "A-plans"-- are discussed.

The article's author, Jim Magner, has extensive experience negotiating pilot retirement benefits as a retirement committee chairman for the IPA, as well as the chief negotiator for the IPA during Contract 2006 negotiations.

Defined Benefit Plans

Most people are much less familiar and comfortable with defined benefit plans ("A-plans") than with defined contribution plans. Defined benefit plans are more complicated and less intuitively understandable than defined contribution plans. To begin with, instead of individual accounts all the money in a defined benefit plan is commingled in one large trust account. Deciding how much money to put into the trust each year is much more complicated than with a DC plan. DC plans are simple, for example, 12% of your W-2 wages, capped by the government limit.

In a DB plan the administrator and actuaries have to make a series of what we hope are intelligent guesses about what the future will look like. How long will the participants live after retirement? What will the rate of inflation be in the future? How will that effect future wage increases? What will the plan earn on its investments? How long does each participant in the plan have before retirement? How many will be disabled before retirement? These and other questions have to be answered each year in order to determine the future benefits due the beneficiaries of the plan and how much must be contributed to the plan each year to fund those benefits.

In making these decisions the administrator of the plan has to operate within certain legal limits. For example, the expected rate of return on future investments cannot be set arbitrarily. There are government guidelines as to what rate of return should be used. Administrators of a plan are fiduciaries and held to a prudent man standard.

If after doing the calculations, the actuaries find that the plan has just enough money to pay its current and future obligations the plan it is fully funded. If it has more funds than required it is overfunded. If it has less it is underfunded. If the plan is overfunded, the Company is not required to contribute to the plan. Once it becomes underfunded it has an obligation to resume funding the plan.

The problem with this from the Company's point of view is that small changes in investment and actuarial assumptions can result in wide swings in a company's obligation to the plan.

Consider the following scenario. The actuaries and the administrator of the DB plan meet and decide that because of changes in the investment and financial climate it would be prudent this year to assume that inflation will be .5% higher in the future than under current plan assumption, and that because of changes in the international markets the plan will earn .75% less than was assumed in the previous set of assumptions. In addition the actuaries inform you that based on current experience, they would advise raising the average life expectancy of the group population by 4 months.

Under this new set of assumptions suddenly the plan obligations have grown tremendously. Small changes in investment and actuarial assumptions can cause huge swings in plan obligations.

The bad news is reported to the C.E.O. and the Board of Directors. Suddenly hundreds of millions of dollars in new liabilities have to be reported on the company balance sheet. This will flow through to the income and cash flow statements. In a financial environment where the investment community can severely punish those who miss their earnings targets, this can be very bad news for the stock price.

In addition, this news is likely to come at the worst possible time. Companies are subject to the business cycle. When business is good company sales and cash flow are up. The stock market does well leading to rosy investment assumptions for things like retirement plans. The company has plenty of cash at this point but it probably has to contribute very little to the retirement trust because the trust has been achieving better than expected investment returns.

Then the business cycle turns down. Business and free cash flow dry up. Investment returns are less than expected causing plan obligations to increase, etc. Now, at the worst possible moment, the company is required to place more funds in the retirement trust.

Think for a moment how different this is from the way you manage your personal finances. When times are good you put more money away. When times are bad you get through the bad times as best you can. In most cases the retirement funding system is completely opposite to the way individuals act. It often requires that businesses cough up cash in the bad times and gives them a pass in the good times when investment returns are above average and plans are technically fully funded.

You should also be familiar with how plan benefits are determined.

All defined benefit plans have a basic benefit formula. Typically it
is an earnings number such as a pilot's Final Average Earnings (FAE), multiplied by a percentage and by the years of service. My experience has been that pilots focus almost exclusively on the percentage figure. For example one will hear something like "We have a 2% A plan." The real question is, 2% of what?

The definition of FAE can vary quite a bit from plan to plan. It maybe something such as the 12 month average of the
last five twelve-month periods prior to retirement. It could be the average of the highest 3 calendar years in the last ten years prior to retirement. It could be the highest 12 calendar months in the five years prior to retirement. As you can see, the definition of FAE can make a considerable difference in the calculation of the retirement benefit.

In addition many plans contain an earnings cap. For example, the earnings may be capped at $300,000. Having the cap means the Company only has to plan to fund the defined benefit plan based on a future final average earnings of $300,000. If there were no cap the actuaries would have to assume that final average earnings would grow because of inflation at some point in the future above $300,000. Without the cap the Company would have to fund those future levels which would obviously require a greater contribution on their part. From our point of view as employees, we would like to set the cap as high as possible or, better yet eliminate it all together.

Defined benefit plans can differ considerably in how they determine years of service. Plans can count the probationary year or not count it. Time spent on sick leave or disability leave can be counted or excluded. Time spent on military leave though is always counted because of Federal law.

In addition to the basic retirement formula contained in the plan some plans contain alternate benefit formulas such as a flat dollar formula.

An example of a flat dollar formula might be that the participant would get $3,000 for each year of or fraction of years of service. A pilot with 25 years of service would get $3,000 times 25 or $75,000. Typically you figure the benefit by calculating the basic benefit formula and the flat dollar formula and than awarding the greater amount.

Why even use a flat dollar formula? The flat dollar formula allows the plan designers to avoid certain government limitations, and to place as much money as possible into the trust for the qualified plan.

There is more to evaluating a defined benefit plan than just knowing the interest rate in the formula. Not all 2% plans are necessarily better than all 1% plans. One has to calculate the basic benefit taking into account all the factors including the particular definition of years of service and longevity as well as accounting for any benefit caps in the plan to properly evaluate it.

Once the basic benefit is calculated it is necessary to calculate the normal form of benefit and any adjustment to the normal form of benefit.

In most pilot contracts the normal form of benefit is a straight life annuity. An annuity is a payment for life, and the "straight" in this term means that it is a payment only on the life of the retiree. If the pilot were single when he retires and his benefit calculation is $75,000 then he would receive one twelfth of that each month for the remainder of his life.

What if the pilot is married?

In that case he might want to provide for his spouse if he should predecease her. Even if he does not federal law requires that he choose at they least a 50% joint survivor annuity unless the spouse relinquishes the benefit in writing.

A 50% joint survivor annuity would not end when the retiree dies, but would pay 50% of the benefit to the surviving spouse until she passes on. Obviously, such a benefit with a survivorship provision is more valuable than a straight life annuity. For a married participant an actuary considers the age and sex of the spouse and the likelihood that she would predecease the retiree and reduces the benefit accordingly. A typical reduction might be 8% to 10% of the straight life annuity for spouses that are similar in age.

Most defined benefit plans offer a number of annuity options. In addition to the straight life annuity and the 50% joint survivor annuity the plan might offer a 100% joint survivor annuity or a 75% joint survivor annuity or a 50% joint survivor annuity with a 10 year period certain. The term period certain means that the benefit will be paid to the estate of the retiree should the retiree and his spouse die before the period certain has expired. As you can imagine each enhancement that increases the benefit for the spouse or the estate in the case of an annuity with a period certain further reduces the amount of the basic benefit.

Some plans also offer a lump sum option in lieu of an annuity. This is a one-time lump sum cash payment to the retiree. To determine the amount of the lump sum payment the actuary considers the average life expectancy of the people in the retirement plan and the interest rate the plan is expected to earn in future years and works backwards to determine the present value which is the amount of the lump sum payment. Another way of saying this is that the actuary answers the question "How much money would need to be invested today to pay the benefit for an average retiree?"

People make very rational decisions as to how long they will live after retirement. If a lump sum option is available people with poor health tend to choose it while those in good health with long-lived relatives tend to choose the annuity option. Because of this a lump sum option increases the cost of the plan. Offering a lump sum option can increase the cost of a defined benefit plan typically by 5% to 7%.

All defined benefit plans contain a normal retirement age, which is the age a participant can retire at with no benefit reduction. Typically, this is age 60 in pilot contracts. In some cases this can not be just an age but an age and a formula. An example, would be age 60 or an age between 55 and 60 with 30 years of service. Formulas like this are found in some labor contracts, but are rare in pilot DB plans.

What happens if the FAA raises the mandatory retirement age from 60 to 65 as now appears likely? It depends how the plan is drafted. Most plans specify a particular age, 60. If that is the case it makes no difference what the FAA does since the normal retirement age will remain at 60.

However it is possible that the plan was drafted to specify "normal retirement age" as being "FAA mandated retirement age". In this case the normal retirement age would increase along with the change in federally mandated retirement age. Check with your benefits administrator. I don't know of any plans that do this, but there could be one out there.

The next question that comes up all the time when I discuss this issue with pilots is "Sure, all the company will do is raise the normal retirement age to 65 in the next labor contract and I have to work five more years for the same benefit".

To understand why this is not the case you need to understand the concept of vesting. Vesting is a right of ownership in your retirement. ERISA, the Employee Retirement Security Act of 1974, requires 100% vesting within seven years though one year or five years is typical.

If your plan specifies age 60 for retirement and you have vested you have a right to retire at age 60. In a future contract the Company cannot ask for and the Union cannot agree to abrogate that right by agreeing to increase the normal retirement age for the years of service you have accrued. They could increase the normal retirement age for those benefits that will be earned in the future, but not for those that have already vested.

As a practicable matter changing the normal retirement age is almost never done. The plan actuaries would have to keep two benefit schedules, one at age 60 and one at age 65. Plan accounting is complicated and expensive enough as it is. If the Company wants to lower plan expenses in future years there are much easier ways to accomplish this. For example, as mentioned above, many contracts have earnings caps that are periodically increased during contract negotiations. Raising that cap less than you might otherwise would lower plan expenses without all of the expense and accounting complications of changing the normal retirement age.

If one retires prior to the normal retirement age they incur an early retirement penalty that will reduce their benefit. This makes sense since one will be drawing benefits for a longer period of time, contributions to the plan will be less and the account will have less time to grow and appreciate before retirement. A general rule of thumb is that one will lose 6% to 8% per year off of the normal benefit for each year prior to the normal retirement age. For example, if a plan has a normal retirement age of 60 and a pilot retires and begins drawing benefits at age 55 the retirement benefit would be reduced between 30% and 40% from the value of the normal benefit. Of course, the pilot could retire at age 55 and not begin drawing benefits until 60 in which case he would incur no penalty.

Many pilot DB plans have contained a provision limiting the early retirement penalty to 3% per year. This represents and increased cost to the plan and an increased benefit to plan participants.

What if the FAA raises the mandatory retirement age and a pilot chooses to work past his retirement plan's normal retirement age of 60? The pilot would of course receive an additional year of longevity up to his plan's maximum. Most pilot defined benefit plans cap the number of years of service one can accrue at either 25 years or 30 years. However, would he receive an actuarial increase because he worked past normal retirement age? This is the opposite case from an early retirement where the early retiree suffers a reduction in his benefits.

In most cases the answer is "No".  While it might not be fair, most plans usually contain a suspension of benefits clause which prohibits granting the actuarial increase to those who retire past the plans normal retirement age.

Defined benefit plans also often contain special survivor benefits that benefit the family of a participant who dies prior to retirement. These are particularly valuable to the families of younger members. An example of these might be a monthly payment to the widow of $2,500/month until the deceased would have reached normal retirement age plus an additional payment of $500/month for each child up to a maximum of three children until such time the child will have reached age eighteen.

If you think about it for a minute this looks very much like life
insurance, but it is not taxed like life insurance. We usually buy our life insurance with after tax dollars. Companies can provide a limited amount of life insurance up to certain amount tax-free, $50,000 per employee. If they provide more than that the employee is taxed on the premium the company would have paid for the excess insurance. By providing these before tax survivor benefits as part of the DB plan the employee can gain a benefit paid for with before tax dollars. This would allow him to carry less life insurance or provide a greater benefit to his family should he pass on.

Pilots are the beneficiaries of a special provision in the Federal Tax Code. The federal maximums contained in the Code are based on a normal retirement age of 65. Normally, if one retires prior to age 65, those maximums are actuarially reduced. Because pilots are forced to retire at age 60 Congress has exempted them from this provision.

The question often comes up, what happens if the FAA retirement age is raised to 65? Will this provision be repealed? In all likelihood the answer is that it probably will be.  Will this result in a reduction in pilot retirement benefits? The answer is probably not. To begin with most pilot plans do not pay anywhere near the maximum benefit allowed under current statute. The maximum defined benefit this year is $185,000. However some of those airlines with larger A Plans such as FedEx could bump up against this limit. If we were to assume the worst case scenario that the maximum federal limit would be reduced by 40% (8% per year) at age 60 this would reduce the $185,000 limit to $111,000. In that case the non-qualified portion of the retirement plan would make up the difference if the plan has one and most plans do. That is why it was drafted into the plan for in the first place. In other words, the pilot would still get the same retirement benefit
as before, but now a small part of that benefit would be paid out of the less secure non-qualified portion.

How much are Defined Benefit Plans worth?

This is a question most people have great difficulty with and pilots, though they have higher educational standards than the general population, are no exception. Our brains do no not have an intuitive sense of the questions involving the time value of money.

One way to answer the question is to ask how much money one would have to pay an insurance company to sell you an annuity equal to your retirement? What the insurance company does when you buy an annuity is guess how long you are going to live on average. They then figure how much they can make by investing in high quality long term bonds. They add in a little bit for their profit, after all someone has to pay for all those impressive buildings they own, and they quote you a price.

Obviously the price will vary depending on how they evaluate the state of your health, and the current market rate for high quality bonds. If bonds are yielding a higher interest rate you'll be able to get a better deal on the annuity.

There are a number of web sites that allow you to purchase annuities on line. It might be worth your time to visit one to get an idea of how much a stream of payments for life would cost if you instead of your company had to buy it.

I recently went to the web site immediateannuities.com and found that under current market conditions a straight-life annuity paying $75,000/year for a male retiring at 60 would cost a little over a million dollars. Most people when asked to guess the cost of a $75,000 retirement would guess much less.

In studies employees, even highly educated ones like pilots, always underestimate the value and cost of retirement benefits. When you think about it many of us will spend a longer time in retirement than we did working for our airline. There was a time in the 70's when one had to be hired by 30 to have any hope of getting on with the majors. These days many folks are in their late thirties or even early forties before they land a job with a top-tier carrier. At the legacy carriers the cost of retirement benefits were equal to twenty to twenty-five percent of the cost of payroll before the recent spate of pension terminations. Today at many carriers it is more like 10% of payroll. When you put this together with shorter careers you have the makings of a pension disaster.

You may remember that earlier in the article we said that if you had a million dollars in your DC plan you could invest it and withdrawal 4% or $40,000 per year. We just mentioned that with the annuity an insurance company would pay you $75,000 per year. Why the difference?

Well for one thing the 4% withdrawals from the DC plan are
periodically adjusted for inflation. The annuity is not. Its payment remains fixed no matter what inflation does.

Secondly, the insurance company issuing the annuity places you in with a pool of retirees. Their actuaries can predict with great precision the average life expectancy of the people in the pool. You as an individual though don't know if you will live 40 years past retirement or only one day past your retirement date. Prudence demands that we plan for a longer than average retirement and lower our withdrawal rate from our IRAs because half us will beat that average life span that insurance company is counting on.

Distress Terminations

Defined benefit retirement plans sometimes end. If the plans are fully funded money is paid out to the participants, who can then roll that money over into an IRA. This is called a standard termination.

In a distress termination the DB plan's assets are taken over by the Pension Benefit Guarantee Corporation. This has been an all too frequent event in the airline industry in recent years.

For a distress termination to occur two conditions must exists. The plan must be underfunded and the company must declare bankruptcy.

The Pension Benefit Guarantee Corporation, PBGC, is an independent agency of the Federal Government that insures defined benefit retirement plans. The PBGC collects premiums from retirement plans and in a distress termination will take over the plan and pay out a limited amount of benefits to the participants.  For those who retired at 65 the maximum benefit the PBGC will pay is $49,500. It is around $29,000 for those who retire at age 60.

Cash Balance Plans

Cash balance plans are another type of retirement plan you should be familiar with. A cash balance plan is a defined benefit plan that looks like a defined contribution plan.

In a cash balance plan the plan sponsor, the employer, contributes a percentage of the employee's salary to the plan trust each year. The employer guarantees that the money in the trust will grow by a certain percentage or by a particular index such as the Treasury Bill Index or the S&P 500 index. Since the employer guarantees the return and takes the investment risk this is considered a defined benefit plan. In reality though the employer does not take much of a risk at all. The employer either chooses a very low interest rate, which is easy to meet, say 4%, or chooses an index and invests the money in an index fund that mirrors that index. In any case the risk to the employer is minimal which allows them to avoid any earnings surprises like they might with a traditional DB plan. When the employee reaches normal retirement age and retires the amount due the employee from the cash balance plan is then used to purchase an annuity for the employee.

The cash balance plan can create virtual accounts for each employee. To the employee this looks like an individual account much like they have in a DC plan though in reality the money is all commingled in the trust. Also like a DC plan the cash balance plan is almost always 100% funded. This means that in case of a bankruptcy filing there is unlikely to be a distress termination.

Unlike a defined contribution plan the participant has no investment choices.  The plan pays whatever the interest rate or index that was specified when the plan was established. Since these are usually very conservative rates of return or indexes the plans tend to have marginal investment performance. Also it is hard to meet the needs of a diverse employee group by having only one investment option.

Also unlike a traditional defined benefit plan cash balance plans do not offer an early retirement option. If you leave early the value of your payout is whatever is in your virtual account. These plans also traditionally lack the survivorship and lump sum options that many traditional DB plans incorporate.

Companies have rushed to convert their traditional defined benefit to cash balance plans in recent years. Though they are not common in the airline industry over twenty percent of existing defined benefit plans have been converted to cash balance plans. This has usually been done to the detriment of the older participants in the plan. When a conversion takes place older workers almost always fair more poorly under the cash balance plans than they would have under the traditional defined benefit plans. This practice has been challenged in court and there have been a series of conflicting court decisions in the matter. Congress addressed some of the problems in the recently
passed Pension Protection Act of 2006 though any attempt by a company to convert a traditional DB plan to cash balance plan should still be viewed with suspicion.

The future of airline pensions

To consider where we are going let's begin by looking back at where we have been.  Pilots have been and are today highly paid workers that have a limite  and fragile career. Typically they learn their profession by spendin  years of apprenticeship in the military or in low paying civilian job  before being hired by an airline. They have also been required to end their careers earlier than other workers either through government mandated retirement or through involuntary medical retirement.

To meet the needs of this group, pilot unions have traditionally been able to negotiate retirements that pay 50-60% of a pilot's final average earnings at 25 years of service. It was assumed that Social Security and personal savings would supplement this company provided retirement to allow a retirement of approximately 80%-85% of the retiree's working income.

Defined benefit plans were the preferred way of providing this
benefit. Defined benefit plans offered professional investment advice and management. This was seen as a necessity as it was thought that wise investing was beyond the capability of many employees. Also in a prederegulation marketplace rates of return were modest for the airlines, but bankruptcy was a rare event.

In 1978 deregulation was passed and things changed. Airline
transportation was no longer seen as a quasi-utility requiring
government regulation for the public good. Critics of deregulation said that the airlines would engage in ruinous competition. Proponents of deregulation said consumers would benefit. Both were right. Over the years the legacy carriers have been liquidated to the detriment of their employees, stockholders and creditors, but consumers have undoubtedly paid less for their air transportation than they would have under the regulated system.

Four years prior to deregulation Congress had passed ERISA to correct pension abuses and shore up private pensions. It was better than what existed before, but it ultimately proved inadequate.

Since the advent of deregulation thirty years ago almost every legacy carrier has been liquidated through bankruptcy or had their defined benefit retirement plans liquidated and the liabilities of those plans passed on to the PBGC. The one lone exception to this has been American Airlines.

Maybe B plans are the solution? Defined contribution plans have increased in the air transport industry. This mirrors the trend in our national economy where there has been a rush to convert of or get rid of DB plans and replace them with DC plans. Worse yet in many cases companies have replaced defined contribution plans with 401k plans that have low company matching or no company match at all. This certainly makes companies more competitive, but it will eventually lead to a generation of American workers that will have much less prosperous retirement than those generations that came before them.

From our perspective as pilots there are two problems with replacing defined benefit plans with defined contribution plans. The first problem as was mentioned earlier is that some folks are extraordinarily bad at managing money. In any investor population there are some people that don't have the interest or the talent to do well in financial matters. Pilots as a group are no exception. Any retirement plan that relies solely on DC plans to fund retirement is likely to have a significant percentage of its retirees reduced to poverty by the end of their retirement.

Now when I mention this, one response I always get from pilots is "So what!" "If they made bad decisions it's their own fault!" This kind of comment usually comes from younger folks. At thirty everyone believes himself or herself to be an investment genius, or at least not an investment incompetent. Age and experience tends to temper one's view of their investment abilities. In fact it has been my experience that the greater an investor's confidence in the their investing abilities at an early age the least likely they are to achieve that investment success. More investors are ruined by overconfidence and greed than by caution.

Everyone believes that the train wreck is going to happen to the other guy. However if you found yourself vigorously agreeing with the proposition "it's their own fault" in the previous paragraph. You might want to consider that you just might be the next train wreck that is getting ready to happen.

When designing retirement plans we have to face the reality that a retirement design that relies solely on DC plans is likely to fail to meet the needs of a significant number of its participants.

The second problem with the DC plans is that because of limits on how much the government will allow you to contribute to your B plan. In most cases it is not enough to fund an adequate retirement.

How about defined benefit plans? Can they be fixed?

The problem with defined benefit plans is bankruptcy and under-funding the plans. These are the two conditions that must exist before a company can shed their DB plan obligations through a distress termination.

There is no way we can prohibit companies from filing for bankruptcy, but it would be possible to raise the status defined benefit plans receive in bankruptcy court. Putting them ahead of certain other classes of creditors would place them in a more secure position. One could also raise the limits on the insurance coverage provided by the PBGC. These coverage limits are not indexed for inflation and have not grown in years.

Unfortunately, I don't believe that we have a very good chance of convincing Congress to act on either of these issues. Congress is unlikely to raise the limits of coverage provided by the PBGC when that agency is already under so much stress just trying to pay the claims it has had dumped on it at today's very low limits. It would also be very difficult to convince Congress to amend the bankruptcy statutes to provide us a higher status in bankruptcy proceedings.

Congress has dealt with some of the funding issues in legislation passed last year. They could do more. Congress could require that companies overfund DB plans up to a certain level, say 20%. This would smooth out some of the peaks and valleys that now exist in funding defined benefit plans. In return they could mandate more level funding requirements to dampen out the boom bust cycle that companies now often find themselves under the current rules.

There has been one set of airline defined benefit plans that has done superbly well during the numerous airline bankruptcies of the past several decades. Those are the defined benefit plans belonging to airline executives. To my knowledge though tens of thousands of airline employees have had their pensions reduced and stripped away through bankruptcy filings not one airline president has lost a dime
out of their pension plans. For some reason when it comes time to file for bankruptcy their plans are always fully funded.

This is completely unconscionable. What we are running here is two separate and very unequal sets of retirement rules. One set of rules exists for the guys at the top. There is different and much less lucrative set for the rest of us.

The single most effective thing that Congress could do to guarantee defined benefit retirement plans would be adequately funded would be to require that plans of workers and upper management be commingled. Right now management has no real incentive to adequately fund workers'
pensions. Why should they? The law allows them to have very rich and very well funded plans that are completely separate from those of their employees. Coupled with the use of the bankruptcy code this creates a moral hazard that almost irresistibly compels management to renege on their retirement promises. Why shouldn't they? Congress has made it so easy for them.

This is a great issue for workers, for pilots, for unions. The basic unfairness of what has happened to workers' pensions in the airline industry while management has suffered not at all is manifest and simply understood by the public. The solution of commingling pensions is simple and easily understood. Simple sells! If the CEO's pension is fully funded ours will be also if we are in the same plan. If not than we are both subject to the inadequate and meager coverage offered by
the PBGC.

It would be great if we could get Congress to compel this by force of law, but even if they do not act this same goal can be accomplished through labor negotiations. We managed to obtain just such a clause in our most recent contract negotiations at UPS and placed our defined benefit assets into the same plan as our executives. Our aim was to align our interest with those of upper management. To their credit our
management showed honorable intentions by agreeing to this.

In the future we will see a greater reliance on defined contribution plans than we have in the past to fund pilot pensions. Because of the limitations and inadequacies of these plans defined benefit plans will make a comeback either in their traditional form or in the form of cash balance plans as newer carriers and legacy carriers which have lost their DB plans rebuild their retirement systems. It would be imprudent to rely on DB plans to the extent that we have in the past.
The DB plans will be more carefully chosen to not exceed the PBGC limits by any great amount, and innovative solutions such as the commingling of executive pensions are sure to be a topic of discussion in future labor negotiations throughout our industry.

In the future I would expect to see most unions try to establish a set of retirement plans that uses a combination of defined contribution and defined benefit plans to meets the retirement needs of their members. By using a combination of defined benefit and defined contribution plans we minimize the risks and limitations associated with each particular type of plan. We don't have all our eggs in one basket.

In the meantime fully funding our personal savings by making the maximum contributions to our 401K's or IRA's seems prudent because we all can't expect 20% to 25% a year on our investment returns. Though I'm sure if we talk about his around the crewroom we will find a few who do.

---