Date: Wednesday, 3 March 2004 12:59 ET
From: DALE.WILLIAMS@EMC2
Subject: Retirement Update
Retirement doesn't just happen. Getting older is inevitable, but financial planning for your future is a life-long pursuit. Estimating your income needs; establishing a retirement budget; understanding the details of the plans offered by your employer; and taking advantage of tax-deferred plans recognized by the IRS are all-important elements of sound retirement planning.
I would like to take this opportunity to address some of the issues I continue to hear from flight attendants from across the system and highlight just a few of the resources available to assist you in developing your own retirement plan. I continue to receive inquiries about the following topics:
* Pension funding
* Transition to Cash Balance Plan
* Retirement / Survivorship Modeler
* Resources on the DeltaNet for retirement planning
* Information on Social Security / Medicare
PENSION FUNDING
Pension funding and the funding status of Delta's Retirement Plan continue to be a topic of much discussion. Recent media coverage; discussions in Congress around pension issues; focus on financial planning; and the challenges being faced by many companies to continue to support and fund their pension plans are unsettling to all of us. However, let me take a moment to address some of those concerns.
Michele Burns' memo, 'Update on Delta's Pension Plan', dated February
27, 2004 is a good summary on where Delta stands in regards to 2004 contributions and the general status of the funding of our plans based on ERISA and GAAP requirements. Delta has already contributed $325m into the non-pilot trust fund and expects to contribute approximately $115m into the pilot trust fund later this year. Delta remains committed to effectively manage both the funding and the investments of our plan assets.
Congress is close to approving a pension bill which addresses the 30-year Treasury bond benchmark interest rate for pension funding assumptions and a waiver for certain industries to help them manage their Deficit Reduction Contributionsover the next 3 years. This bill will require the signature of the President in order to become law.
Pension funding requirements are dependant upon several items:
* Individual Plan assets
* Interest rate assumptions and benchmarks
* Minimum funding requirements established by ERISA
* Maximum contribution amounts determined by the IRS
Currently, the 30-year Treasury bond interest rate is at the lowest level in decades - approximately 5%. Congress has proposed a Co-Mingled Corporate bond rate as an alternative. Due to the low interest rate of the Treasury bond, plan assets are estimated to be considerably shy of projected benefit obligations over the long-term. This interest rate situation has the biggest influence over our funding status, as it does for most other companies who offer defined benefit plans.
Managing our pension funds is the responsibility of our Finance division, who is responsible for the investment decisions, both internally and through external advisors. Calendar-year 2003 results posted the best one-year return on our assets in the 32-year history of the Plan.
The Pension Benefit Guaranty Corp - the PBGC, insures all defined benefit plans. Delta pays a substantial premium each year based on the plan's funding and number of plan participants. The level of benefit guaranteed by the PBGC is established each year and is based on the following criteria:
* Year of plan termination
* Asset levels in the plan
* Accrued benefit obligations for retired and active employees
* Income level of particpant
* Age at retirement of participant
* Changes to the plan over the previous five years before termination
The PBGC website is located at www.pbgc.gov. You can find a substantial amount of general information relating to the role the PBGC plays in insuring defined benefit plans. Understanding the role of the PBGC in the security of our pension plan is important, but it would be premature to assume any involvement by the PBGC in our plan - given the fact that Delta continues to meet all funding requirements set forth by ERISA.
TRANSITION TO CASH BALANCE PLAN
Retirement plans can be complicated. Our current Final Average Earnings Plan evolved over thirty years since its inception in 1971. Now we are transitioning to a Cash Balance Plan. The transition period is from July 1, 2003 - June 30, 2010.
During the transition period, all employees who were employed before July 1, 2003 will accrue benefits under both plans. Upon retirement - before or after July 1, 2010 - the greater of the two benefits accrued during the transition period will prevail.
Obviously, transitioning from one defined benefit plan to another defined benefit plan is not easily understood.
Q) Do I need to retire before July 1, 2010 in order to secure my benefits under the FAE Plan? Will I lose some benefit from the FAE Plan if I choose to retire after July 1, 2010?
A) No. These assumptions are wrong. If you retire during the transition period, your benefit will be determined by the value of the current FAE Plan up to your retirement date, or, the value of the current FAE Plan up to June
30, 2003 PLUS your Cash Balance Plan amount accrued since July 1, 2003 - whichever is greater. If you retire after July 1, 2010, your benefit will be determined by the greater of the following - FAE benefit calculated at June 30, 2003 PLUS Cash Balance Plan benefit accrued from July 1, 2003 until actual retirement date, OR, FAE benefit calculated on June 30, 2010 PLUS Cash Balance Plan benefit accrued from July 1, 2010 until actual retirement date.
RETIREMENT / SURVIVORSHIP MODELER
The best way to determine how your benefit will be calculated is by going to the DeltaNet and utilizing the Retirement Modeler found on the Employee Connection site. This is a very valuable tool available to all active employees. There are actually three modelers within the modeler program.
* Retirement Income Modeler
* Budget for Retirement Modeler
* Survivorship Modeler
All three of these modelers can provide you with the information needed to estimate your retirement and survivorship income from Delta. The Retirement Income Modeler will project your income from the FAE Plan, the Cash Balance Plan, the combination of the two plans, and your Social Security income.
The Budget for Retirement Modeler can assist your planning by including income sources from your 401(k), your IRAs, other pension income from WAL/PAA, spousal benefit income, etc.. The Survivorship Modeler will highlight your current survivorship benefits from Delta and Social Security, changes to our survivorship benefits effective July 1, 2010 and survivorship benefits from other sources such as life insurance, pension survivorship benefits from your spouse, etc.
Access to the Modeler is available through the DeltaNet homepage.
* Go to 'Employee Connection'
* Go to 'Self Service'
* Go to 'Retirement Modeler'
* Go to 'Logon to Modeler'
All you will need for access is your HR pin #. The same pin # we use for access to our benefits enrollment in the fall.
RESOURCES FOR RETIREMENT PLANNING
There are numerous resources available to enhance your retirement planning capabilities.
On the DeltaNet:
Retirement information is available through the Employee Connection website.
* Go to 'Employee Connection'
* Go to 'Benefits'
* Go to 'Retirement / 401(k)
By calling the Employee Service Center at 1-800-MY DELTA
On the Worldwide Web:
Fidelity's NetBenefits site - www.401k.com
Social Security - www.ssa.gov
Medicare - www.medicare.gov
PBGC - www.pbgc.gov
Understanding all of the elements of your retirement planning needs is important. Establishing a methodical apporach to meeting your financial needs by investing in and managing your 401(k), establishing a Roth IRA, utilizing the Retirement Modeler on the DeltaNet, and understanding the role Social Security and Medicare play in your post-retirement years can relieve some of the uncertainty inherent in these finacially difficult times for Delta.
As always, I am available to answer as many of your questions or areas of concern as possible.
Regards,
Dale Williams
Delta Board Council