MBCPB Calculator for Widget Pilots

As usual, Delta Air Lines is leading the airline industry with an improvement to their pilots’ contract. It’s called a Market Based Cash Balance Plan (MBCBP).

I built a calculator to help a Widget pilot decide when (probably not “if”) they should participate in this plan. I’ve embedded a video explaining the basics of the plan and how to use the calculator here:

Here’s the background:

Years ago, airline pilots could rely on a fat pension that paid 60% FAE (Final Average Earnings) for the rest of their lives. For better or for worse, those are all but gone. And they’re not coming back.

In the wave of airline bankruptcies in the late 2000s, airlines replaced their Defined Benefit (DB) pension plans with Defined Contribution (DC) 401k plans. Instead of contributing funds to fund a DB plan, companies now provide that DC, extra money in addition to a pilot’s regular pay, expressed as a percentage. At lesser companies, this percentage is only a “match” where the company only contributes as much money as the pilot themself contributes, up to a maximum percentage. At the major airlines, the DC is a fixed percentage, regardless of what the pilot themself contributes.

Personally, I believe a 401k has significant advantages. One problem, though, is that the IRS limits how much can be contributed to an individual pilot’s 401k account in a given year. For 2023, this limit is $66,000 for most pilots, or $73,500 for pilots over age 50.

While that seems like a lot of money, it’s actually very common for pilots at the major airlines to hit this limit each year. When that limit is reached the company’s DC can go a few different ways. At some airlines, like United, those funds go into an account called a VEBA. It’s essentially a suped-up HSA. At Delta, the pilots get those extra funds as regular old, taxable cash.

While that excess cash is nice, it also means more taxes. The MBCBP is a way to protect more money from the IRS, after reaching the annual 401k contribution limits.

MBCBPs aren’t new. They’re fairly common, but most people don’t hear about them because it takes a pretty high income to make one useful. The IRS must approve each plan on an individual basis, but as long as you’re willing to hire someone to help you do it, IRS approval can be expected.

For Widget pilots who participate in their MBCBP, all of the company’s excess 401k DC above the annual limit ($66,000-$73,500) will go into the MBCBP. For younger pilots, this wouldn’t be much. For more senior pilots, it’s possible to more than double the funds you can protect from the IRS each year.

There are some disadvantages to the MBCBP. While it will make sense for most pilots to participate in the MBCBP during the last several years of their careers, younger pilots will definitely want to opt-out until the right point in their careers. Rather than spelling out all the details, I’ll just refer you to the instruction video and the calculator itself.

Not a Widget Pilot?

If you’re not a Widget pilot, you probably don’t have a MBCBP. I think it’s still worthwhile for you to watch this video and run some scenarios in the calculator.

This type of plan is a significant benefit for most pilots. You may decide it’s worth asking your own union to pursue negotiating for one at your company. If you’re considering which airlines to apply for, picking the one leading the industry by setting up a MBCBP might be a big advantage for you.