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Posted on DEC 14, 2018

PBGC Benefits Review

By Robert L. Warner, Managing Director, The Pilot Program from Johnson Financial Group

In our work with airline pilot prospects and 400+ airline pilot clients since 1997, we have provided extensive guidance/advice on defined benefit and defined contribution pension programs elections and options. And, as a result of all the industry bankruptcies and mergers, we have also worked with frozen defined benefit plans and reviewed many detailed PBGC benefit calculations to help pilots understand how the PBGC arrived at its own benefit figure.

Some pilots, especially PBGC eligible retirees, have a tendency to make benefit commencement and option decisions that may not be in their best financial interest. This typically tends to be a simple case of not understanding all of the available options and analyzing how they fit into their personal situation.

The majority of legacy United pilots will receive a PC4 benefit from the PBGC at benefit commencement (any time after age 60). The PBGC benefit, like Social Security (but without the Cost Of Living Adjustment—known as COLA), is actuarially based. That means the longer a beneficiary waits before starting the benefit, the larger the benefit. This can even be true for some PC3 beneficiaries.

Here are some PC4 benefit increase examples:

Benefit Start Age Percent of Age 65 Benefit
60 65%
62 79%
65 100%
67 121%
70 166%

These are very generous increases for delaying the start of the PBGC benefit.

The point is that starting the PBGC benefit (and selecting the appropriate benefit option) is not one to be taken lightly because it can be an important financial benefit for a very long time. It is a decision that is unique to each individual's financial and life expectancy situation.

Like Social Security, the solvency of the PBGC is of concern to many pilots. Choosing the right benefit option, like any decision involving the future, is an odds‐based decision. Currently, however, it appears the odds are very favorable that the PBGC will be able to pay benefits for many years.

The PBGC has two funds: multi‐employer and single employer. The multi‐employer program is the one that gets most of the negative press, while the UAL plan is a single employer plan. Regardless, an evaluation of the solvency of the PBGC is an important consideration, but should be done with an understanding of how the PBGC calculates liabilities and the interest rate assumptions used.

Our advice is to:

  1. Take advantage of the excellent ALPA R & I Committee members and resources. They are well versed in the PBGC program and can help you gain familiarity with your benefit and options.
  2. Since ALPA doesn't engage in individual financial advice, be sure to consult with your financial advisor prior to making your benefit option election and starting your PBGC benefit (this also applies to any retirement benefit plan).

If you aren't using an advisor give me a call and we can discuss.

Robert Warner
Robert L. Warner is Managing Director, The Pilot Program, Johnson Financial Group and EVP Johnson Wealth, a Johnson Financial Group Company. He is also a Chartered Financial Consultant (ChFC®). He has over 25 years' experience helping clients, including active pilots and their families achieve their retirement and estate planning goals with an emphasis on estate conservation and wealth transfer planning.

Johnson Financial Group and its subsidiaries do not provide tax advice. Please consult your tax advisor with respect to your personal situation. Wealth management services are provided through Johnson Bank and Johnson Wealth Inc., Johnson Financial Group companies. Additional information about Johnson Wealth Inc., a registered investment adviser, and its investment adviser representatives is available at https://www.adviserinfo.sec.gov/. NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE