I’m not now and never have been one of the FP60 litigants – I keep repeating this in the hopes that my views will be accepted as an observer and not a participant with an interest in the legal outcome of the January 2015 court hearing.
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It would appear that only the intervention of a certified Actuary is going to settle this income loss/gain debate between Fanblade and Rockie, and given that actuarial services are very expensive I suspect such an intervention will never happen here to settle things to the agreement of all.
My personal point of view is that an Actuary would conclude very quickly that there are simply too many dynamic variables at play throughout a pilot’s career that would prevent any reasonable set of assumptions being developed and applied to an income projection model. Actuaries rely on statistical data to develop assumptions such as life expectancy or interest rates. There is no data to reliably predict a company’s health 20 -30 years out (expansion or retraction) and there certainly is no data to reliably predict individual pilot bidding patterns.
As I have stated before, I’m with Rockie vis-à-vis the consequence of the removal of mandatory retirement at age 60 and its effect on seniority progression/income loss/gain. Fanblade, on the other side of the debate, is very passionate and certain of the opposite effect on the pilot’s career.
I believe all can agree that there has been a definite slowdown in seniority progression due to a slowdown in retirements, and agree also that this is a short-term effect, in as much as by 2017 retirements will resume at pre-2012 rates.
The effect of this 5-year hiatus on income is a much more contentious issue. Fanblade has developed a chart based on what I presume are some form of (actuarial-like) assumptions that leads to a projected career income loss, the effect of which is greater on the more junior pilots. I believe that I understand Fanblade’s logic and as I explained in a previous post, I believe that his logic is flawed in as much as it is impossible to develop actuarial assumptions that could be applied to a projection of a pilot’s future income.
I was content (sort of) to leave it at that (agree to disagree) but the thought kept gnawing away that surely there must be a way using Fanblade’s preferred method (math) to demonstrate what I believe to be true: that at the end of a career, a pilot’s total income will not be in the loss column, but rather a gain at best, or break-even at worst.
I came up with a chart (see attachment below) showing years of service from 1 to 40. With each of these years is assigned a symbolic wage amount. To keep the math simple, Year 1 was assigned a wage of $1000 with each subsequent year increasing by $1000 thereby representing an expected wage uplift (be it an increase due to equipment change, right seat to left seat, or just an annual across-the-board raise). So, in column 1 are years of service and column 2 are annual pay rates where Year 1 = $1000, Year 2 = $2000, Year 5 = $5000, Year 20 = $20,000 and so on until finally Year 40 = $40,000.
I then created a column 3 that showed cumulative earnings throughout one’s career. Obviously at the end of Year 1, the cumulative earnings would be $1000. For each year thereafter would be added the previous year’s earnings. So at the end of Year 2, the cumulative earnings would be $3000, at the end of year 10 the cumulative earnings would be $55,000 and so on up to year 40 where the cumulative total is $820,000. I should state at this point that my “math” was done manually so any error is mine and unintentional.
A pilot retiring under the old system with 35 years service would have cumulative earnings of $630,000. What effect does the new regime have on a pilot who, for example, was age 40 when the rules changed? He was expecting to retire at age 60 with 35 years service and $630,000 cumulative earnings based on him “moving up” every year with an increase in pay. But at age 40 the rules changed and, to create a worst-case example, has been penalized with zero (no) advancement in pay or seniority progression for 5 years due to every pilot senior to him staying on the seniority list.
What happens now? The method I used was to go back 20 years on the chart from year 35 (60-40=20 years to retirement) and look at his salary per year (that which he would be earning at the time of the retirement rule change) and then freeze that salary for 5 years (see column 4). In this example, he would be in Year 16 of the pay scale making $16000/year and would be frozen at that rate for 5 years. At the end of the 5th year of the freeze he would start advancing again, making $17,000 in the 6th year, $18,000 in the 7th and so on up the scale with the difference being the 5 additional years between ages 60-65 now becoming income producing years at rates of 32, 33, 34, 35 and $36,000/year. Working to age 65 now increased cumulative earnings from the previously noted $630,000 to $730,000. No income loss here.
Using the same method for a pilot aged 55 (see column 5) at the time of the rule change results of a cumulative earnings increase from $630,000 to $785,000. Again, no income loss. What is the impact on the most junior pilot, for example, bottom of the list, hired on 01 Jan 2013?
For this example I created a 6th and 7th column, with the first 5 years frozen at $1000/year and after that, Year 6 at $2000, Year 7 at $3000 and all the way up to Year 40, which is now set at $36,000. Taking numbers from column 3, looking at a 35-year career with no interruptions and retirement at age 60 under the old mandatory retirement rule, we have seen cumulative earnings of $630,000. From the 6th and 7th columns, this new, bottom-of-the-list junior pilot, frozen in advancement for the first 5 years but now able to work for 40 years instead of the original 35 will see cumulative career earnings of $670,000. Admittedly, only a slight increase, but an increase nonetheless. A pilot hired in 2017 will suffer none of the freezes, and over a 40-year career will see a significant cumulative earnings increase from $630,000 to $820,000 as shown in column 3.
It bears repeating (as a reminder) that my numbers do not in any way represent actual wages. They are simple numbers used to represent, calculate and compare whether wage loss or wage gain has been caused by the change in retirement age. My logic assumes a wage increase for everyone, for each and every year, a 5-year freeze in advancement and a 5-year addition to the number of years able to be worked. I don’t claim that my chart is accurate (although I believe it to be reasonable) and I will be happy to receive any comments that might improve or reveal holes in my thinking. I am simply trying to demonstrate that over one’s career, the potential is there to earn more income and not suffer, as Fanblade postulates, an income loss.
I am sure Fanblade, that you will be first to pounce on my “math” and quick to point out that the most junior pilots, even using my model, receive the least gain – at least that’s what my chart appears to reveal. But … even the most junior seniority number doesn’t lose wages. Had ACPA taken a different approach to FP60 this inequity might have been identified and mitigated but of course history cannot be undone.
Not a factor in my chart, but a huge and significant issue nonetheless, is the ability to contribute for 5 additional years to your pension plan – particularly for those pilots who started later in life and not close to being able to achieve 35 years pensionable service. Other items that might have been negotiated had ACPA not been so recalcitrant with FP60 are the 35-year cap, early retirement penalties, indexation, survivor benefits, etc. It was disheartening to watch how quickly the pension plan went from billions in deficit to a surplus around the same time that the retirement rules changed. True, it was not all due to the change in retirement age, but the change had significant impact on the plan’s funding and the pilots didn’t see a dime of the benefit that went to (or didn’t have to be taken out of) the company’s coffers.
But, I’m off-topic, so … contemplate the above and fire away! Plug in your own circumstances and let us know how you have been impacted.
To save those posters who are going to say that they now have to work beyond age 60 against their wishes, yes, I realize that you most likely will take an early retirement benefit penalty if you choose retirement before 65. The outcome for ACPA pilots fighting FP60 has been far from optimal, but ACPA has no one but itself to blame for ignoring the opportunity to make the change in retirement age work for everyone, particularly as regards pension matters.
- Earnings Chart.docx
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