Widget MBCBP Final Update

We’re rapidly approaching the last day on which a Widget pilot will have the opportunity to chose whether or not they want to participate in the new Market Based Cash Balance Plan (MBCBP), or make a one-time, irrevocable election to maintain status quo (and not participate).

Overall, I still feel like the MBCBP is a good deal for most pilots. Unless you’re already very involved in alternative investments, you’re probably better off participating in the MBCBP. I have several alternative investments, and I’m leaning toward participating in the MBCBP anyway. I can use the $300K loophole to throttle how much goes in there for now.

If you’re still not sure about participating in the MBCBP, you need to chat with some type of Certified Financial Advisor ASAP.

Even if you think you’ve made a decision, you definitely need to read Negotiators’ Notepad 23-18, an FAQ with updates sent out on 7 July 2023.

Last-Minute Decision Change

One of the most important items in this FAQ is that if you’ve already filled out the form electing to maintain status quo and not participate, you’re now allowed to change your mind up until the end of the window on 31 July 2023. The NN has an email address you need to write to immediately if you change your mind.

Collective Investment Trust vs LIRIX

In past updates, the plan was to invest all MBCBP money in Blackrock’s LIRIX fund…for now. This wasn’t because LIRIX is anything special, but because it met the contractural specification of investing in 40% global equities (stocks) and 60% bonds. Since LIRIX is a lifecycle fund, that ratio would have changed over time, requiring the MBCBP to move at least part of our investments into something else.

As of NN 23-18, LIRIX is no longer the plan. Instead, the MBCBP will be invested into a Collective Investment Trust (CIT). Overall, this is…well…fine.

In NN 23-18, they explain that the expense ratio, the percentage that PCW will charge for managing our money, will be significantly lower in the CIT than it would have been for LIRIX or other similar options. So, that part is a win.

And yet, this development is potentially a bit of a disappointment.

The only drawback here is that it means someone will be picking stocks for us. I firmly believe that for most people, paying someone else to pick stocks for you is a bad idea. (The only thing worse is trying to pick stocks yourself).

If you haven’t already read The Simple Path to Wealth by JL Collins, or the “Stock Series” on his website, you need to go read this article right now: Why I Can’t Pick Winning Stocks, and You Can’t Either.

The bottom line is that Standard & Poors publishes an annual report of actively managed investment funds (like our CIT might be) and how they perform. Throughout the history of these reports, the majority of actively managed funds have performed worse than the market on average, or a low-fee whole-market index fund.

So, if PCW pays a bunch of expensive analysts to pick stocks for our MBCBP’s CIT, there’s a good chance they’ll do worse than the market average. If they instead just invest in low-fee index funds, we’ll be fine.

I hope PWC doesn’t try to play stock guessing games with our money. If they do, I think it’s probably within our purview to direct them to pursue a different strategy.

Like I said, this isn’t a huge deal overall. If they guess poorly, they probably won’t lag the market by too much. There’s plenty of time for us to provide feedback/redirection.


Although I’d been under the impression that all fees for the MBCBP would be paid by the company, the NN 23-18 FAQ says otherwise.

It specifies that all “recordkeeping, actuarial, and consulting fees” will be paid by the company. However, PWC will also charge a 0.05-0.06% “investment fee” for all money managed in the plan. That money will come out of our investment returns. (This is the Assets Under Management or AUM model I’ve mentioned in other posts).

On one hand, this disappoints me. I’d been under the impression that all fees meant all fees. That appears to be a miscommunication, or false assumption on my part. (You know what happens when you assume, right?)

That said, 0.06% is a very low fee. Unless you’re investing in a zero-fee index fund like FZROX, you’re probably paying somewhere in the range of 0.01-0.05% in fees on the Fidelity index funds in your 401k.

The first law of Thermodynamics is: You can’t get something for nothing. This applies to finances too. We can’t expect someone to manage even a basic mutual fund without charging us money for their time. I’m okay with that as long as they’re acting as fiduciaries on our behalf. I just wish that the company would cover those costs like I blithely assumed they would.

What Are You Doing, Emet?

I get this question a lot. I keep saying that:

  1. You need to talk to a pro
  2. Unless you’re already involved in alternative investments, the tax advantages and automatic nature of the MBCBP are probably advantageous for you

I have a lot of those alternative investments. My family owns two rental properties, one long-term rental and one short term (Air BnB). We’ve recently invested in real estate syndications with Vault Capital and Turbine Capital. We have money invested in a couple Real Estate Investment Trusts (REITs). We also made what amounts to a seed or angel investment in Flying Eyes Optics, makers of what I believe to be the best aviation sunglasses on the planet. I also invest time and money into the company under which I write this website and a lot of other material.

We only started investing seriously in these sorts of things after we’d filled up a basic Treasure Bath using a combination of IRAs, TSPs, 401Ks, and traditional brokerage accounts. If you aren’t maximizing contributions to traditional accounts yet, I’d lean toward doing that before you pursue alternatives.

And yet, each of these investments has unique tax advantages and varying potential for making money. We plan on investing in more of them. This kind of investing needs education, and in many cases, personal relationships. It also requires having capital on hand to invest.

If I lock up potentially tens of thousands of dollars per year in the MBCBP, that’s investments I can’t make in another syndication or a down payment I can’t make on a new rental property.

However, I can use the loophole I mentioned to minimize money going into the MBCBP in years when I’d rather focus on alternative investments. I can let the company fund 100% of my 401k contributions on the first $330,000 of my income this year. That leaves me with a lot of cash available for alternatives.

This would mean have my company putting $52,800 into my 401k next year before I contributed a cent of my own. I could choose to fund the rest of the $13,200 to reach the annual IRS limit of $66,000 myself after the company maxes-out the contributions they can make.

From that point, the entirety of the company’s 16% Direct Contribution (DC) will go into the MBCBP. I won’t be able to use those funds for alternatives. However, in the grand scheme of things, 16% of my earnings over $330,000 isn’t a terrible burden if I’m investing in alternatives.

Delta pilots start their careers around the 85th percentile for income among all Americans, and rapidly reach the top 1 percent. Unless I start spending like an absolute moron, I should still have plenty of cash to use for alternative investments even if some of my compensation ends up in the MBCBP.

The good thing about this though is: if I change my mind in the future and decide to press the “Easy” button by just maximizing the dollars in my MBCBP, I can race the company on 401k contributions early in the year and potentially get more money into my MBCBP than can be contributed into my 401k for the year. That’s a lot of tax-advantaged savings!

I’m still not 100% sure on this strategy, but it’s where I’m leaning for right now.

What’s Your Plan?

In general the MBCBP is a good deal for most pilots. I do a lot of alternative investing, and I’m still likely to participate in the new plan. That’s just me though.

What’s your plan? Do you have any unique circumstances that led you to decide on way or another? Did you get any valuable insights by consulting a pro? Those insights won’t translate directly for other pilots, but they may provide some good starting points for a new discussion with a pro of their own.

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