- Aug 20, 2002
Because UA could then afford to set up a defined contribution (DC) plan to offset the loss of future pension accumulation. This is what USAirways did for their pilot's who had their pensions terminated.Rampman said:So 767jets please explain how this does not hurt me.
For example, if you make $40,000 they might contribute and additional $4000 per year to a DC plan, that would grow similarly to your 401K. And that money is yours to invest as you see fit. Once it is earned it can never be terminated or taken away. With compounded interest this would be a nice nest egg if you have another 10, 15, or 20 years or more to go, and would supplement your PBGC pension and your 401K. An added bonus is that it is much more secure, and if you ever choose to change jobs, you take it with you and roll it over.
Pensions (DB plans) are expensive because the contributions required by the company reflect an estimated future liability based on current market returns. When the market tanked, the funds went from over funded to underfunded almost overnight. DC plans are paid every paycheck and are a defined amount. (Hence the name: Defined Contribution) The money is yours and the company doesn't have to worry about huge "makeup" paymayments when the market fluctuates down.