The Art of a LinkedIn Cold-Contact

I recently got some great discussion on a LinkedIn post. It started as mostly a complaint, partially intended as general advice. At risk of being more the former than the latter, here’s a post with some practical thoughts on how you can be more effective in establishing meaningful contact with others.

To get there, we’re going to have to look at some bad examples first. Trust me, this exercise will be useful later.

The Bad Examples

I don’t appreciate most of the pitches I get in my LinkedIn direct messages. They’re frequently so impersonal and generic that they immediately sour my attitude toward the person making contact and whatever it is they’re pitching.

More than once, these pitches highlight a surprising lack of attention to detail. What frustrates me the most is the almost crass impersonality attached to a message portrayed as a personal contact.

Let’s look at some examples:

On the surface, this one isn’t terrible. It offers something of value, giving me a link to a free event right up front. I’m welcome to take the sender up on their offer, or not.

However, they missed one important point: military retirement is not a major player in my life right now. Yes, I may be able to retire this year or next. However, I won’t receive my reservist pension until roughly age 57. I made the transition from full-time military service to a full-time civilian job nearly a decade ago. I’m not sure what this webinar will cover, but I suspect the invite is hitting several years too early or too late.

I can understand the cold-caller’s error here. They’re probably using an algorithm to scrape all of LinkedIn for people nearing 20 years of military service. My profile clearly shows that I graduated from the USAF Academy in 2004, so it’s reasonable for a mindless computer algorithm to identify me as someone who could potentially be retiring next year. (Although, statistics show that 80% of military members don’t put in a full 20 years on active duty, and, especially in the military’s current staffing nightmare, it’s likely that a pilot who has stuck around for 20 years will have compelling opportunities for several additional years of service. You’ll see a common theme here: you need more information than a bot is likely able to provide.)

What this pitch really says to me is: “Jason, I pay for a 3rd party algorithm to identify people who fit a range of characteristics I want in a client, and your profile popped. I haven’t bothered to take even a passing glance at your LinkedIn profile, but I’d love to start a business relationship that will make me a lot of money by acting as steward of your family’s financial future.”

Sorry, but you need to do a lot better.

Let’s try another:

This one feels significantly less personal to me, despite the words “on a more personal note” appearing in the message.

For me, “Federal Employees” is one of the most generic categorizations possible. If you’ve read anything I’ve ever written, you’ve probably noticed my frequent underhanded barbs about the US government’s lack of efficiency. Lumping me into the broadest possible grouping of those inefficient workers is almost an insult in my opinion.

It wouldn’t have taken much effort to swap that phrase out with “military members,” “veterans,” or perhaps something as outlandish as “combat veterans,” especially if you had even glanced at my profile.

I suspect that some search algorithm matched us based on me being in the military and my frequent use of the phrase “financial independence” that also appeared in your message. However, you failed to note that much of my posting involves a book and associated website about how individuals can secure their own financial independence without having to pay someone like you.

If you’re cold-pitching your P.O.M. Method to people, I hope you believe it’s better than whatever it is I write about. However, if you’re going to pitch it to me in a personal message, at least do me the service of showing that you have some idea of where I’m coming from and include a single-line teaser evidencing that fact.

This next one was nearly frustrating enough to prompt this article’s creation without any other examples:

These four messages arrived anywhere from a few days to a few weeks apart, without any reply on my part.

Although specifying a preference for connecting with “Veterans” is better than “Federal Employees,” it’s still pretty generic. There’s a lot of pro-veteran rhetoric in America right now, though, so I let that one pass.

The next prompt screams generically impersonal though. What is it that you noticed in my profile when you looked at it? (Because you did actually look at it, right?)

Your “what’s next for you?” question was simply lazy.

If you had actually looked at my profile, you’d see that I’ve been a USAF Reservist for a while, and that I got a full-time civilian job when I transitioned from Active Duty. If you’d asked your lazy question a little over seven years ago, the answer would have been “I’m going to be an airline pilot.” At this point, it’s a pretty easy deduction to see that my current “what’s next” is “more of the same.”

This sender’s third message continues the impersonality and verges on desperate. I promise, if I was interested in what you’re pitching I would have responded by now. The fact that I haven’t should be a sign.

Then you mention “the training” for the first time ever. What is “the training”? If it’ll give me some sweet nunchuck skills, then you can shut up and take my money. If not, I’m going to need more information.

Your original message implied that you just like connecting with vets. Your next one asked some impersonal and poorly researched questions. Then, you (or your algorithm) forgot to even send me the automated message pitching your training to me.

The final message here is shocking. It arrived more than a month after their initial contact attempt. After failing to gain my attention with their other approaches, this sender finally presents something remotely concrete – a post-military career path other than something in corporate America.

For the right target, this might finally provide some useful information. However, it shows a complete absence of interest in me as an individual. My basic profile information makes it painfully obvious that I already left full-time military service. Although I don’t work in a cubicle (thank God!) I am enjoying a day job in corporate America. My career progression should make it completely obvious that I’m very happy with this job.

I also happen to post links to a lot of my writing on my LinkedIn profile. If you’ve read any of them, you’d see that I love my corporate America job in part because it already gives me the free time to pursue entrepreneurial projects. That’s right, I both work in corporate America, and have found some satisfying niches outside it as well. If you actually want to entice me, your pitch would need to include something to the effect of:

“It seems like you enjoy side hustles that bring rewards beyond those offered in corporate America. My training can help you enjoy opportunities like those, while making more money from them. “

I’m probably still not interested, but this would improve your chances with most prospects.

I’d back-burnered my draft of this article for several months, thinking it was too cynical to publish. However, I’ve continued receiving unwanted pitches from personal financial advisors on LinkedIn. It’s frustrating. This recent addition prompted me to dust this article off and publish it:

Once again, tell me you hired a bot without telling me you hired a bot….

Optimize my pension? As I’ve mentioned, I won’t get a pension until at least age 57. I wouldn’t expect every financial advisor to know this. However, the particular individual sending this pitch advertises on his profile that he was a USAF pilot who served for a full 23 years! Even a passing glance at my profile should make my pension situation relatively clear for a long-time USAF pilot.

Next, if he’s read anything I’ve ever written, especially some recent stuff, he should realize that I’m against paying people to pick stocks for me. I’m not sure what he’s going to do with my TSP to optimize it. I know of several services that charge clients a bunch of money for picking funds within the TSP, a strategy that is all but guaranteed to fail a majority of the time.

I am genuinely curious about how he thinks he could improve the tax advantages of the TSP. However, the rest of the message, in the context of the rest of this post, is off-putting enough that I’m content to go with what’s been working.

Finally, he tries to entice me by branding his financial strategies as a version of the MDMP…the Military Decision Making Process. (If you don’t know what this is, here are 100+ pages of eye-gouging US Army handbook on this bureaucratic nightmare.)

If this person had any idea of who I am, they couldn’t help but perceive my seething disdain for bloated military bureaucracy. I avoided military staff work like the plague. I understand its necessity and value. I appreciate those patriots who serve in those billets. However, I value clear, efficient, and effective action. Branding your product based on the MDMP is the worst possible way to pitch me on anything.

Thanks for enduring these so far. One more and we’ll get to some take-aways.

I feel bad picking apart all these examples, but we need to consider the one that pushed me over the edge on finally writing this full post:

Simply put: this feels manipulative. If your content is so good that you think I’ll love it, then give it to me up front and let it speak for itself. I promise that if you impress me, I’ll give you that feedback and seek out more of your content. Entrepreneurship podcasts are a dime a dozen, and I can get most of them without having to send your bot a thumbs-up emoji.

This message says to me: “I put minimal effort into some content that serves as part of my client funnel. It’s not good enough to hook you on its own, so I’m using this cheap manipulation to get you engaged without knowing whether I’m presenting anything of interest or not.”

I feel like this message was generated by a 3rd party application and that the sender would have no idea if I, specifically, responded. It seems likely they’d only see my response as part of a dataset on an analytics dashboard.

If this sender had the good sense to just include their podcast episode in the first place, this message wouldn’t have needed my action to be effective. All they would have had to do is mention some specific, personal reason they think I might be interested in entrepreneurship and feel like I need some help with it.

And that, finally, leads us to some better ideas.

Fundamental Principles for Better Contacts

I see people on social media who seem to treat contacts, friends, or followers like seashells in a collection. They might be nice individually, but mostly they’re something they count and then put back on a shelf or into a box.

One of the reasons I like LinkedIn is that it generally rises above the petty drama and outrageous life-crafting of other social media platforms. It feels like people go there to actually accomplish something of value.

I don’t see anything terribly wrong in sending a connection request to a stranger that I find interesting on LinkedIn. I’ve “connected” with several celebrities (aviation writers and accomplished pilots like Elliot Seguin) without any expectation of actual personal interaction. However, I’d jump at an opportunity to interact, and I hope that sharing a connection might help facilitate a conversation if I manage to leave a valuable comment on something they post someday.

This is Fundamental Principle #1. If you have no existing relationship with a person, then connecting on social media does not count as a meaningful relationship. At best, this is you subscribing to updates on content they produce.

Next, let’s discuss hiring a bot to scrape LinkedIn for you.

In principle, there’s nothing wrong with this. Although we don’t like to admit it, social media is a brilliant scheme to get users to provide a whole bunch of personal data for businesses like mine. (If you’re not okay with that, then run, screaming, from such platforms!)

It would be a waste if people didn’t create bots to comb through these large populations to find target customers based on your specific criteria. I hope you support the best of these providers.

If you’re selling something ubiquitous like diapers, coffee, or shoes, then it’s okay for your bot to pitch people automatically. This is called advertising. Google, Facebook, and all the others make billions of dollars by selling ads narrowly targeted to people who most closely meet specific criteria. (Twitter seems to be losing ground here. Remember: speech is and should be free, but the consequences of your speech are not.)

If you’re selling something generic, then buy ads. There are entire companies who will help you choose the right criteria and design your ad to maximize performance.

However, and here is Fundamental Principle #2: if you are attempting to generate business that relies on an ongoing personal relationship, then generic is your enemy.

Any schmuck with an internet connection can go to Vanguard or Fidelity right now, and have a brokerage account set up within a few short minutes. They can buy the lowest-fee index funds known to humanity. Statistically, those funds are more likely to approach the performance of their index than any actively-managed fund.

When speaking with friends, acquaintances, FOs, and others, I strongly recommend they not pay people like you to pick stocks for them. And so, you must offer something else, something better.

Yes, your pitch offers that…via a webinar, or podcast episode, or an introductory call. However, you should realize right now that you are in a saturated market. Simply stating that you have something to offer is not good enough.

Do you want to know Fundamental Principle #3? The most important thing a financial advisor can offer is diligent, individual attention to each and every client.

Like it or not, your industry is not great at this. Your model only works if you sign up as many clients as possible. The problem is that the more people you sign up, the less attention any one client gets. So, you systematize things and hire a team. We hate that though. We don’t hire an individual pro to get shunted off to a far-less-qualified sub-specialist (unless your firm’s performance is seamless and amazing).

Do I sound cynical? It’s because of past experience.

If you want to cold-pitch me on LinkedIn, your most important objective should be a display of your attention to individual clients so impressive that it rises to the level of “shock and awe.”

Given the abysmal examples I’ve included here (and several that didn’t even make that cut) the bar is pretty low right now.

I’d be extremely impressed by a cold-caller who included 1-2 lines in their pitch subtly revealing that they’d actually read through at least some portion of my LinkedIn profile. The fact that almost nobody seems to have figured this out leaves me hanging my head in frustration.

Even better would be a pitcher who demonstrated some idea of my personal circumstances, and had some specific advice tailored to me and my family.

Such a pitch would never imply a connection based on a buzzword like “federal employee,” “veteran,” or even just “pilot.”

This leads to Fundamental Principle #4: automated tools are just that, tools. They are not final solutions!

You cannot, you must not send out automated pitches based on automated search results without any human intervention. Sorry, but if you want any hope of enticing me to form a long-term business relationship with you, you must show me that you put in the effort to look at each one of your search results and made the effort to start providing individual attention before you even reached out to me.

That sounds like a lot to invest without any guarantee of success. Let me ask you though: how successful is your generic, automated LinkedIn client generation right now?

I recently had a great conversation with a financial advisor that we’ll discuss more shortly. However, one of his comments was that he once tried using LinkedIn for automated client generation and gave up because it performed so poorly. I suspect that if you compared the value of putting your time into better, personalized pitches, you’d get more client generation value than simply by paying for another month of search results that you don’t even bother looking at before the system sends out painfully ignorant or even manipulative cold-pitches on your behalf.

Good Examples

I hope my rambling here got the point across. Those Fundamental Principles should sound somewhat repetitive, because they’re really just different ways of expressing the same idea. Please consider applying them to do better.

In hopes of ending on a positive note, I want to tell you about two financial advisors who haven’t cold-pitched me, per se, and whom I actually respect.

The first is Tim Pope. He’s a Certified Financial Planner and I am not his client. We got in contact because he read an article I wrote and followed up by actually reading my LinkedIn profile. He contacted my editor at the time, sending a very personalized message focused on Networking, rather than a sales pitch.

We chatted and connected on LinkedIn, and now seem to end up in the same discussions on LinkedIn posts on a fairly frequent basis. I like his balanced perspective and professionalism. I like that we agree a lot of the time, and that he respectfully challenges others’ ideas (especially mine!) when his perspective differs.

He’s occasionally offered me his services as a CFP, but it’s never been a hard sales pitch. Since we have some measure of existing relationship, and since I know he’s actually considered who I am as a human being, I know that when he offers me a service it’s because he already has a concrete idea for how he could help me.

Tim is starting a new project soon, and I may play a very small part in some of it. One of the entering arguments for our discussion of that project was his acknowledgement that we don’t agree philosophically on everything…and that’s okay.

I still don’t feel like I personally need to hire Tim to help with my family’s finances, but if I did I’d be much more likely to reach out based on his individual attention and him taking the time to form a meaningful networking relationship. When I encounter pilots who do need a CFP, I always recommend they include Tim in the list of people they interview for the job!

My next (and final) positive example is Matthew Vann. He read a recent post where I came down hard on whole life insurance policies, and disagreed with my position.

He also took the time to look at my LinkedIn profile and found that we share several similarities. (I’m jealous that he flies the Airbus while I’m stuck on the guppy). He also noted that we have a mutual contact at his financial advice firm. He contacted his friend first to get some background (bonus points there!), then reached out to me.

He didn’t reach out to try and sell me a whole life policy. He didn’t even necessarily try to justify selling a product that I’d spoken so strongly against. He approached me to have a discussion about these products in general to make sure he’s not missing some gotcha that makes them a bad deal for his clients.

We had a phone call that was mostly him showing me information, but I was happy to spend that hour with him. Our conversation is still ongoing, and he has been very open to my input and even criticism (sorry Matt, I owe you a response but I’m busy writing this).

Would he like to sell me a whole life policy? I’m sure he would! However, if he does it’ll be because he took the time to understand who I am and tailor a discussion to me as an individual. It will not happen because some generic algorithm sent me a cold-pitch message on LinkedIn.

If you’re interviewing financial advisors, I feel like Matt would also give you some meaningful, individual attention. Maybe ask him to hold off on insurance until he and I get further into our discussion, but there are plenty of other valuable services he might be able to offer you as well.

Wrap-Up

Life expectancies for Americans are in the 70s and (hopefully) climbing. If you land someone like me as a client, we’re looking at a 30+ year relationship. If you manage to snag a much younger professional pilot, that relationship will probably have a minimum timeframe exceeding 50 years.

Would you start a serious romantic relationship by hiring a bot to swipe through Match, or Tinder, or Bumble for you and throw out automated date invitations on your behalf? You’re pursuing a business relationship that could potentially last longer than a lot of marriages. How dare you even consider pitching potential clients with a similarly impersonal approach!

Bots are fine if you use them correctly. (My current favorite bot is the one masterfully written by author Martha Wells.) Let your bots generate a list of potential clients for you. However, at that point the bot is done! (Send them off to recharge and watch Sanctuary Moon.) From there, it’s up to you to diligently learn what you can about a given prospect before crafting a tight, specific pitch that shows how much individual attention you’re interested in putting into a relationship with them.

If you do this, I can only assume you’ll see more success than you are now. If you’re not willing to do this, then please find a new occupation because we, your clients, deserve better.

If I responded to your cold-pitch with nothing more than a hyperlink to this post, I appreciate you reading all the way to the end. I’ll be honest, it would take a pretty compelling offer for me to hire you. Don’t be offended by that…there are plenty of more fish in the sea. However, if you want to try again with me, at least now you know how to get started.

This post’s featured image is by Brett Jordan on Unsplash.

Widget Pilots’ GVUL – Part 2

The pilots at Delta are in their first annual open enrollment window for a new Global Variable Life Insurance (GVUL) plan that was added in their new contract. This plan offers exactly the same benefits as their old plan, but adds significant tax advantages. For more detail, read my post about that side of things.

The GVUL is unique because it offers a related, but completely optional benefit. This plan acts similar to a brokerage account where pilots can invest money in the stock market.

In and of itself, that’s unimpressive. Any pilot can go to Vanguard right now, and open a brokerage account in about 5 minutes without having to talk to a single human being. Vanguard is easy to work with, links directly to your bank account, charges you zero fees for having an account, offers exceedingly low-fee mutual funds and ETFs, doesn’t charge you anything to make trades, and doesn’t charge you to withdraw your money.

A few of the numerous other companies that offer similar brokerage accounts include: Fidelity, Charles Schwab, Robinhood, and M1.

The investing side of the GVUL is worse than Vanguard in almost all of those areas, but offers such significant tax advantages that it might be worth putting some money into anyway. Let’s see how.

Review: Imputed Income

The GVUL’s first investing plus is that it reduces a pilot’s imputed income. This is the IRS taxing you for benefits you got from your company, even though you never received any cash. Delta Air Lines pays the premiums for their pilots’ term life insurance, but the IRS considers that imputed income and adds that amount to each pilot’s taxable income.

Thanks no doubt to a lot of lobbying for reasons that may or may not benefit pilots, the insurance industry convinced Congress to write a tax loophole for plans like the GVUL. Now, the IRS will only count a small part of Delta’s premiums as imputed income against pilots participating in the GVUL.

This is a huge tax benefit enjoyed by every participating pilot, whether they use it to invest or not.

Applying Pilot Math to this situation says that pilots should not spend those saved tax dollars on hookers and blow. Instead, that new annual windfall should be invested toward your future. However, this benefit is measurable and significant whether you invest those funds or not.

Cost Basis

While the GVUL benefits all participants by reducing imputed income, it adds an even bigger tax advantage for investors. Through some more lobbying efforts, Delta’s premiums help pilots escape taxation in the future because those premiums get rolled into the cost basis of each pilot’s investment. (If you just said, “Wow, nice,” you can skip this section. If you just asked, “Huh?” then stay here.)

Cost basis is a way of saying: “what you put into an investment.” If you were to buy $1,000 of Fidelity’s Total Market Index Fund (FSKAX), your cost basis would be that $1,000. Let’s say that after a few years your shares of stock are now worth $1,500, so you sell them.

When you do your taxes, the IRS says:

$1,500 – $1,000 = $500

and makes you pay capital gains tax on that $500 of investment income. Capital gains tax is based on your overall income, but for most pilots it’ll either be 15% or 20%. That sucks. Old Neegan takes $75 out of your investment earnings, reducing your Return on Investment (ROI) to 42% instead of 50% (in our theoretical example).

The GVUL helps you avoid that tax hit. You use the investing side of your GVUL just like a brokerage account and buy a fund similar to FSKAX. You could put in that same $1,000 and get out that same $1,500 after roughly the same amount of time. When you sell, you’d still realize that $500 capital gain.

However, during that same amount of time, Delta will have been paying insurance premiums into this plan, and everyone keeps track of total premiums paid. Let’s say Delta had paid exactly $500 in premiums on the day you sold. The IRS allows your cost basis to change in the GVUL according to this equation:

Cost Basis = Money Invested + Company Insurance Premiums Paid

Since you’d originally invested $1,000 and the company paid $500 in premiums, your new cost basis looks like this:

Cost Basis = $1,000 + $500 = $1,500

Now, when the IRS calculates how much capital gains tax you have due they’ll subtract the price at which you sold your shares from this new cost basis like this:

Capital Gain = Price of Shares Sold – Cost Basis

Capital Gain = $1,500 – $1,500 = $0

That’s right, thanks to Delta’s insurance premiums increasing your cost basis, you can take 100% of your earnings (capital gains) and not pay any tax on them.

Double Benefit

In my mind, this ends up being a double benefit:

  1. Delta’s premiums reduce your imputed income on the front-end (and you should invest the difference).
  2. Delta’s premiums increase your cost basis, reducing capital gains tax when you cash in your investments. This further reduces your tax bill on the back-end.

That’s a lot of bang for your buck, and the best part is that it isn’t your buck. This all happens thanks to Delta’s money covering your insurance premiums. I don’t know of another brokerage account option with this kind of benefit. (I do know some other investing options that offer what are likely greater benefits. We’ll get there shortly).

The (First) Catch

If you think this sounds too good to be true, you’re right. We should all be asking: “Why would MetLife bother advocating for this?” The lobbying required to get this rule passed can’t have been cheap. It costs them a lot of money to administer the brokerage side of their business. They’re good to offer us a favorable insurance product, but make no mistake: they didn’t get us these investing deals out of the goodness of their hearts!

The first catch here is that MetLife charges the pilot (not the company) what’s called a “front load” of 2.25% on any money invested. This is a fee they take the moment you send them investing dollars.

If you’re new to investing, this may not sound like a lot. If you aren’t, you’re probably frustrated by this number. If a friend were to tell me, “Hey Emet, I just invested in this great new deal…and I’m only paying 2.25% in fees,” I would immediately give him a Gibbs slap and ask what he’s thinking.

In this day and age, a 2.25% fee for any investment is simply too much. As we mentioned earlier, you can invest with Vanguard, Fidelity, and a variety of other companies with a 0% front load. That is the industry standard. A whopping 2.25% is…well below standards.

And yet, pilots should remember that they can offset a lot of taxes and fees in the GVUL using Delta’s premium dollars. We’ll quantify all this shortly. However, there’s a clearly definable point at which those premium dollars cover any expected capital gains, plus this ridiculous 2.25% fee, and the pilot still comes out ahead.

Catch #2

The next catch in this whole plan is the withdrawal fee. For some inexplicable reason, MetLife decided to buck the industry standard and charge pilots $25 every time they pull money out of this plan. This fee is just silly. I’ve never done business with a brokerage that charges a fee like this. Personally, I’m not going to pass up a good opportunity over a $25 money grab, but that may be important for you. In truth, this fee is so small, I completely ignored it in my calculator (see below).

Yet Another Catch

I wish I could tell you that the 2.25% front load, and $25 withdrawal fee were the only issues with the investing side of the GVUL, but they aren’t.

Unfortunately, the GVUL only allows pilots to choose from a menu of 20 specific funds for investing their money. This isn’t unheard of, even in things like a major airline pilot 401k plan. However, the funds that MetLive chose for the Delta GVUL are extremely expensive.

Each of these investments charges investors a fee, also called an expense ratio. Thanks to Vanguard founder John Bogle, most modern index funds charge extremely low fees. That Fidelity FSKAX we mentioned earlier? The expense ratio is 0.015%.

The fund charges this to you annually, by simply reducing your investment gains. I don’t begrudge a fund charging some fees. Essentially large companies, it costs a lot of money to keep these entities running. The government paperwork alone must require numerous full-time employees. I don’t mind paying investment fees at or below 0.05%. However, anything above that subjects me to involuntary facepalms.

The lowest-fee option in the Delta pilots’ GVUL has an expense ratio of 0.24% – a full 16 times higher than FSKAX at Fidelity. The most expensive option in the GVUL charges a staggering 0.63% – making those fees 42 times those at Fidelity!

Even more frustrating is that Fidelity offers a zero-fee index fund (FZROX).

So, with the GVUL you’re paying 2.25% up front, and $25 to withdraw your own money. Then you’re also paying investment fund fees at least 16 to 42 times higher than an equivalent fund elsewhere, every year.

Is it now clear why MetLife wants you using the GVUL to invest?

Are Higher Fees Worth It?

If you’re the type of person who reacts emotionally to the news about these fees and immediately decides to not invest through the GVUL no matter what, you should consider getting out of investing altogether. Sink your money into a high yield savings account and get a hobby to keep your attention off your money, or hire a pro and let them manage your money for you.

At this point, savvy investors might consider the possibility that these particular investment funds could perform well enough to justify their fees. If they do far better than those low-cost alternatives at places like Fidelity, why not pay the fee to the pros with the best performance?

Let’s compare some of these funds to see.

Two of the GVUL investing options include: Blackrock’s Capital Appreciation Fund (MGFDX), and Brighthouse Funds Trust II MetLife Stock Index Portfolio Class A (I can’t find a ticker symbol, so we’ll just call it Brighthouse). We’ll compare these to the Fidelity Total Market Index Fund (FSKAX) I mentioned earlier. First, let’s look at just expense ratio, year to date performance, and performance over the last 1, 3, and 5 years:

FundExpense RatioYTD Returns1 Year3 Years5 Years
MGFDX0.63%31.68%29.78%2.38%8.64%
Brighthouse0.26%12.84%21.29%9.87%9.64%
FSKAX0.015%13.97%8.42%9.07%10.11%

If all we looked at was YTD returns, we’d conclude that the Blackrock fund is totally worth the higher fees…even at 42x. Their returns this year have more than doubled the competitors we’re considering. However, if we look further along the timeline, the picture changes drastically.

By the 5-year mark, we see that the Fidelity fund did better than both of these higher-cost options. (I didn’t include the 10-year figures here, but to be fair, MGFDX is currently beating FSKAX by about 2% at the 10-year point). Best case, I think we need more information.

Let’s try looking at performance by calendar year:

Fund20182019202020212022
MGFDX1.74%31.85%40.09%20.69%-37.84%
Brighthouse-4.6%31.15%18.1%28.36%-18.3%
FSKAX-5.28%30.92%20.78%25.65%-19.51%

For me, these numbers tell a much more useful story. In good years, when the entire market goes up, all of these funds go up as well. In 2020, MGFDX went up nearly twice as much as both competitors. However, in 2021, the low-fee Fidelity index fund out-performed it.

It’s also important to note that in the bad years, every fund does poorly. In 2018, MGFDX stayed just above zero while the other two funds lost money. However, in 2022, MGFDX lost twice as much money as the other two options. (It’s important to note that with compounding interest, drops hurt more than rises help. If your portfolio drops 20%, it will take a rise greater than 20% just to get you back to zero.)

Overall, I don’t feel like these expensive GVUL funds have performed better enough to justify such high fees. Depending on when you need your money, the extreme volatility of these funds could be a major problem. Overall, I’d rather pay a much lower fee and get an index fund that more closely tracks the market average. It will still experience volatility like the rest of the market, but that volatility won’t get amplified like it does for those other funds.

Over the very long term, it appears that most of these funds approach the overall average performance of the market. It’s critical to note that none of them does consistently better than the other. This is fundamental to the idea of index fund investing.

Over the long term, very few people do better than the market average. If you haven’t read The Simple Path to Wealth by JL Collins, you need to. If you’re cheap, you can read the same content on the author’s website. He explains why most actively managed funds fail to even do as well as an index fund. This isn’t just his opinion. Standard & Poors publishes an annual report of all actively managed funds, and a majority of them always do worse than a low-fee index fund, despite charging much higher fees like the funds offered in the Delta GVUL.

Past performance is not a guarantee of future gains, but the funds currently offered in the GVUL are probably not a compelling value, in and of themselves.

Let’s note that Delta’s pilots should have at least some power here. They, through their union, should be able to advocate for adding some lower-fee funds to the menu of options in the GVUL. This should be an easy sell to MetLife: “If you continue offering these ridiculously expensive funds, nobody’s going to use this feature at all and you won’t get your 2.25% front load. If you offer some better funds, you’ll at least get some takers and make some money. Would you rather have 2.25% of something or 2.25% of almost zero?”

Hidden Fees

I wish I could stop beating up on the GVUL’s investing options, but there’s still more to do. If you dig into the prospectus for the Delta GVUL you’ll find some hidden gems like this:

“The current expenses and performance information below reflects fees and expenses of the Portfolios, but does not reflect the other fees and expenses that the Certificate may charge. Expenses would be higher and performance would be lower if these other charges were included.”

This fine print is MetLife admitting that they’re not even telling Delta pilots about all the fees they charge. What are those fees? We have no way of knowing at this time.

I would hope that the Delta pilots’ union reps would insist on getting some more complete information on these hidden fees.

Special thanks to Jesse Reed from Creative Planning for pointing this fine print out to me. If you want his quick take on the GVUL, read it here on LinkedIn. I personally place great value on his financial opinions.

Running the Numbers

At this point, you might think I’m strongly against using the investing side of the GVUL. You’d be wrong.

If you start reading opinions about GVUL investing from professional financial advisors, you’ll hear them say they don’t like the GVUL’s fees…especially those in its limited menu of very expensive funds. They’re 100% correct that those funds are ridiculous. Delta and ALPA should do better for their pilots.

And yet, if we set aside our natural, emotional responses to the bad things about GVUL investing and look at some actual numbers, the results are pretty clear. In many cases, investing through the GVUL beats investing in lower-fee index funds through a regular brokerage account because of the tax advantages the GVUL allows.

Don’t take my word for it though. I built a calculator that takes most of these factors into account and compares returns on a similar investment under both options. (I ignore the $25 fee MetLife charges when you withdraw money. It’s stupid, but piddly). The calculator gives credit for tax savings that you should invest, but does not assume you actually invest them. If you do invest those funds, it’ll sway things even more in favor of the GVUL.

Here’s a video explaining how to use the calculator, how it works, and where to find the key takeaways. Remember everything is based on the assumptions that you put into the spreadsheet. Garbage in will yield garbage out. You can download a copy of the calculator by clicking on this link.

(You should be prompted to save your own copy. Sorry, but this is the only way to safely and effectively post a spreadsheet online. Don’t ask to edit my copy. Use “File -> Download” or “File -> Make a Copy” to get your own, editable version.)

Video explanation of how to use my GVUL calculator.

Professional Advice

Please, do not make any investing decisions based on this article or my calculator alone. My intent is for you to use this calculator to get an idea of what your situation may be, then take your results to a certified financial advisor. Let them look at your calculations and help you decide what to do.

If that advisor discounts the GVUL out of hand, because of the fees or any other reason, engage them in a more detailed discussion and insist they justify their position with numbers.

I believe that most airline pilots benefit from professional finance advice. However, one of the things I dislike about that industry is that it’s built on a model of funding itself by charging an Assets Under Management fee (AUM). Most financial advisors would rather be in charge of investing your money, rather than leaving you to do it yourself in the GVUL, because they then make 1% per year on your funds. They’ll explain to you that their 1% is far better than the 2.25% front load, plus exorbitant ongoing fees that the limited menu of investment options in the GVUL allows.

Although your advisor will be correct on all those points, don’t let them gloss over the tax advantages of investing in the GVUL.

God’s honest truth is that you should not pay someone else an ongoing fee to pick stocks on your behalf. As we’ve already discussed, most of the people offering to charge you for those services do worse than an index fund. You don’t need to waste 1% of your wealth every year to do better.

That said, I do believe in compensating professional advisors for the value they provide. Ideally, they’d all operate on a fee-for-service model. It would be worthwhile to spend a few hundred dollars to have a professional advisor help you decide whether to invest through the GVUL or not. Then, that pro should leave you to do things on your own and not charge you an ongoing fee.

The worst case scenario here would be that they advise on one direction or the other, let you invest on your own money, but then try to tell you that since they advised you on that decision, that’s all money under their “management,” meaning you owe them an annual 1% anyway. I’ve heard of pilots paying for similar services…paying advisors who charge to tell you how to invest the money in your TSP or 401k. Personally, I would not do business with this type of company.

Beating the Street

Although I assert that you can potentially do better investing with the tax advantages of the GVUL than through a regular brokerage account, there’s a third option with the potential to put your first two options to shame.

There is a whole field of “alternative” investments involving things other than buying stocks, bonds, and mutual funds. This frequently involves what’s called a syndication…essentially a small company set up to invest in a specific real estate project. This could be anything from an apartment complex, to a mobile home park, to self-storage facilities, to oil and gas wells, or more. These funds gather money from a relatively small pool of investors, and usually require a minimum investment of $25K-$50K.

Frequently, thanks to more lobbying and pork barrel politics, Congress has written tax loopholes that provide major advantages to these kinds of real estate deals. Frequently, a syndication involves making some improvements to a property, and then taking a majority of the tax deductions for that expense up front. It gets more complicated, but as an investor the advantages are impressive.

Many syndications are able to generate “paper” or “phantom” losses so large that individual investors will get a tax deduction in the first year of the investment approaching the amount of money they invested into the project. These paper losses will offset returns from similar types of investments, saving you tens of thousands of dollars in taxes.

Then, these projects pay a return over time, either from rents, gas royalties, or selling off portions of a large property. At the end of a specified term, usually in the 3-5 year range, the syndication sells the entire property to a larger operator (think Blackrock). Your syndication will have made improvements to the property, raised rents, increased production, or taken other measures to increase its value. So, at the end of the term, investors typically get all of their capital back, plus some profit…all in addition to the rents or royalties they collected for the past few years and all those sweet tax bonuses.

I’ve invested in a few different syndications. Some were frankly mediocre. Others; however, have provided tax benefits far superior to anything the GVUL could offer and investment returns far better than I would ever expect from any stock market investment.

These kinds of investments are far from a sure thing, which is why the federal government won’t let you invest in one unless you’re “accredited.” This simply means you have a net worth over $1M, or an annual income of at least $200,000 (single) or $300,000 (married). The idea here is that if you make that much money and choose a catastrophically bad investment, it won’t ruin your family financially. Regional captains and most major airline pilots should easily qualify for accredited investor status, so this probably isn’t more than an easy paperwork drill for you.

Baby Steps

I hope at this point, you’re intrigued by the idea of investing in something like a real estate syndication. These deals really can offer both tax benefits and investment returns superior to anything invested in the stock market (including the GVUL). That said, you need to get into this kind of investing carefully.

Before you put money into any alternative investment, I strongly recommend you consider maximizing contributions to any tax-advantaged retirement account you have. This includes: IRAs, TSPs, 401Ks, HSAs, 529 plans, etc. These are table stakes for a serious investor. Fill them up first before branching out.

You may hear about investors who don’t contribute to their 401k, opting instead for alternative investments. You may eventually feel the same way. However, until you’re overwhelmingly confident in your investing savvy, keep contributing to the basics.

Then, any time you identify a potential alternative investment, you must conduct due diligence. This means spending actual time to put actual attention on the underwriting documents for the deal. You need reason to believe that the investors are being honest and realistic about the costs they’ll incur in this deal, and the potential upsides. In most cases, you should strongly consider having your fee-only financial pro take a look at the deal for you too.

Part of making these types of investments safe is only trusting people with whom you have a personal relationship. This requires some actual Networking. I got into one recent syndication because an old USAF flying buddy happened to be involved with the project. My wife and I also know his wife…she helped deliver one of our babies. He contacted me directly about the opportunity to invest, and I was able to have some very frank discussions with him about the deal before even starting on my actual due diligence. I was eventually pleased to be able to invest in the deal.

I’ve made two recent investments with another capital fund because I got to essentially spend an entire weekend grilling the guy in charge. We talked money philosophy, the specific types of investments he runs, flying (he’s an airline pilot), and more. At the end of the weekend, I felt confident that we see eye-to-eye on most things finance related, and felt safe investing in his deals.

If you aren’t sure about where to begin, start asking around. You’ll be surprised at how many of your contacts can introduce you to someone in this investing realm.

In the meantime, make sure you start educating yourself on these kinds of investments. If you aren’t already, start listening to the Passive Income Pilots podcast. They cover all the principles you need with some great guests. The two hosts also happen to be pilots who run their own investment firms that offer the kinds of syndications I’ve discussed here.

Another great source of education on these types of opportunities is the BiggerPockets Real Estate podcast. They cover a wide variety of investing types, but syndications come up repeatedly over their 800+ episodes.

Another way to start getting involved in these types of investments is to ask your finance pro to find them for you. Realize that when you do this, any investment you make will be under their management…and that will likely cost you a fee. I’ve invested in a couple deals through a financial advisor that my wife and I use for some of our assets. We’ve had mixed results on those deals. Overall, I think they’ve been valuable, but I believe most pilots are better off building their own network and finding their own way into alternative investing.

As you do this, don’t rush! You should note that I’ve passed on far more deals than I’ve invested in. Take your time to conduct due diligence on any deal you’re considering. Stick your money somewhere useful for the time being. Let it grow and don’t deploy it into an alternative investment until you feel confident that it’s a good deal. Even then, realize these opportunities are restricted to accredited investors because they carry unique risks. Personally, I never invest so much in any given deal that it would cause my family problems if things went wildly wrong and the whole thing fell through.

I’ve been a fan of using a half stock index/half bond index account as a holding pattern for money until I find the right syndication, though vanilla high yield savings accounts are paying a lot due to inflation. You could do worse than making 4-5% in a HYS account right now.

Or, another option would be to sock away your alternative investing money in the investment side of your GVUL. Let the money grow there and use the tax advantages to offset any earnings. The money there is liquid enough that you can withdraw it to invest in a syndication as soon as you’re ready. As you run my GVUL calculator, you’ll note that your effective Return on Investment is highest for the first couple years your money spends in the plan anyway.

Conclusion

Wow, that was a lot of information…plus there’s a video you may want to watch. Thanks for sticking through this, and I hope it’s been useful. Here are my key takeaways:

  1. The insurance side of the GVUL appears to be a great deal. I can’t find a reason not to participate. If nothing else, it’s the same coverage you used to have, but it adds the benefit of reducing your imputed (taxable) income.
  2. There are some big downsides to the investing side of the GVUL. The fees are way too high, and Delta pilots should insist their MEC get them some relief. There’s no reason MetLife can’t at least offer a low-fee index fund like VTSAX, FSKAX, or something similar within the GVUL.
  3. A certified financial planner may have a principle-based aversion to the investing side of the GVUL. They’re not wrong in this. However, if you run the numbers, the GVUL can beat investing a similar amount of money in a low-fee index fund on your own, despite those significant drawbacks.
  4. Although the GVUL may provide you with an excellent investment vehicle, many alternative investments provide both tax advantages and investing returns far superior to those available in the GVUL or a regular brokerage account.
  5. You should not jump blindly into alternative investing. Take your time, educate yourself, Network, and do your research for every deal you consider. If you need a place to stash your money until you find the right syndication, the GVUL may be just the place to do it.

This post’s featured image is from Jeff Griffith on Unsplash.

Widget Pilots’ GVUL – Part 1

As if their new contract wasn’t good enough already, starting November 1st the Delta pilots get their first (annual) opportunity to switch from their old term life insurance policy to a new Group Variable Universal Life (GVUL) plan.

This article is not tax, investing, or insurance advice. That said, I have yet to hear a reason to not opt in to the new plan.

And yes, you must take active steps to opt in. You’ll have to fill out one web form to opt in with Delta between November 1st and 15th. Then, you’ll have to go to fill out a separate web form with MetLife shortly thereafter. Screw up either of those and you’ll be stuck in the legacy term plan until next year. (If you have questions, just call your MEC. They’ll help you get sorted.)

If that’s all you needed to hear, you can quit reading here and go back to scrolling the only thing on Facebook with any redeeming value.

If you want an overview from an official source, check out Episode 38 of the Engage Podcast. If you’re interested in some deeper discussion of the GVUL’s benefits, keep scrolling.

Episode 38 of the Engage Podcast covers much of what you’ll read here. The guests include a MetLife rep, and the Delta ALPA MEC’s Retirement & Insurance Committee volunteers who helped set this plan up. It’s worth a listen.

Why is GVUL Better?

The new GVUL plan offers several advantages over the old term insurance plan.

First, one of the biggest drawbacks of the old plan is that the IRS holds your insurance premiums against you. Delta Air Lines pays those premiums on your behalf, which is nice, but the IRS counts those funds as “imputed income” and requires you to pay income tax on them…even though that money never touched your bank accounts. I know plenty of progressive pilots, but I don’t think I’ve ever met one liberal enough to like these imputed income policies.

Through some legislative wizardry, the GVUL gets a loophole. For the GVUL only, the IRS only views a portion of Delta’s premiums paid to the GVUL as imputed income. Yes, Delta still pays 100% of those premiums until you leave or retire.

This is a huge bonus for Delta pilots.

The website set up specifically to explain GVUL basics for Delta pilots suggests that pilots my age will see their tax bill decrease by $768 per year, thanks to the reduction in imputed income. Senior Delta pilots will effectively get a $5,318 annual raise the moment they opt in to the GVUL.

Note that this is for the exact same basic coverage as the term life insurance. The Delta pilots’ contract sets that death benefit at “2,500 times the 12-year Captain hourly rate on the highest paying aircraft type outlined in the PWA in effect on January 1st of each year, rounded to the nearest $1,000.” Thanks to the United pilots negotiating to intentionally trigger the Delta pilots’ “me too” clause, this will look like:

2,500 x $447.24/hr = $1,118,100
(round down to the nearest $1,000)

So, let’s summarize the GVUL benefits so far:

  1. The Delta pilots get the exact same death benefit
  2. Delta continues to pay all premiums while pilots are employed at Delta
  3. Unlike the legacy term plan, premiums paid into the GVUL are not counted as imputed income, so opting in to the GVUL essentially gives a pilot an immediate raise.

We’ll discuss some more benefits, but if you weren’t already convinced, this could easily be all you needed.

Lower Coverage

One strategy some Delta pilots have used to reduce their imputed income burden was to decrease the amount of their coverage under the legacy term life insurance plan. This saved on taxes now, but left some families exposed to increased risk. Thankfully, this is no longer necessary at all. There is almost no benefit to opting for lower coverage since most of Delta’s premiums are no longer counted as imputed income.

Another problem with the legacy plan is that the moment a pilot retires, their death benefit immediately drops to $250,000. It then decreases by $50,000 every year until the final year it becomes and stays $10,000.

The GVUL improves on that by allowing a pilot to keep their existing coverage, if desired. Under the old plan, a retiree at age 66 has a death benefit of $200,000. A pilot under the GVUL could still have that death benefit of more than $1.1M. I hope none of us actually needs an extra $900K in death benefit at that age, but this provision alone could be salvation for a family in a tough spot.

And yet, this is where we see one potential drawback. Under the GVUL, retired pilots will have to cover their own premiums. Based on the less-than-transparent charts provided by MetLife, those premiums would be not less than $14,000 per year! However, retirees also have to pay a surcharge on top of those premiums. If a pilot has known issues and may not be around long, the GVUL provides a magnificent way to take care of their family when they pass away. Whether you continue coverage or not will be a rather detailed conversation with professional financial and tax advisors.

In an ideal world, no pilot would ever need this benefit.

So, (Why) Do I Even Need Life Insurance?

Personally, I believe that life insurance is important for many people. You need to talk with a finance professional to decide whether you’re one of them. Ideally, that answer will change over time.

The whole point of life insurance is that if the primary bread-winner in a family passes away, their surviving heirs will be able to cover their expenses. In many cases, like the benefit available to Delta pilots, that $1.1M should be enough to pay off the mortgage on your home, pay off existing car loans, fund at least some college for your kids, and/or cover some years of living expenses.

In a family with no other savings, the surviving spouse will eventually still need to get a job, but with a paid-off house and cars, a family in this position could potentially get by on Mustachian levels of spending.

However, in an ideal world, a pilot will have spent their career filling up their Treasure Bath. Even a relatively new pilot at a major airline should have a lot of money socked away in some combination of IRAs, TSP, 401k, HSA, regular brokerage accounts, and/or alternative investments. The longer you’ve spent making major airline pilot pay, the more money you should have been shoveling into these bathtubs. If a pilot nears the end of their career without at least a few million dollars in these accounts they’ve been doing it all wrong.

(Yes, I’m judging you…unless you have a family member with severe medical issues…or you’ve blown all your cash owning and operating a fleet of P-51s. In either of those cases, you have my utmost admiration.)

As the size of your nest egg increases, your family will find themselves increasingly able to pay off any outstanding debts and cover living expenses after inheriting your nest egg. They won’t need a big insurance payout. Under the Delta pilots’ legacy term plan, it might have been valuable to decrease coverage over time as an individual pilot’s net worth increased. This would simultaneously decrease that pilot’s imputed income tax burden.

As we mentioned, that kind of strategic reduction is no longer necessary for Delta pilots because their imputed income is so much lower. They might as well keep the full benefit until retirement. At that point, it may be worth dropping the plan altogether to avoid some very steep premiums.

Eventually, a pilot should reach the point where their nest egg was worth more than their life insurance payout. At that point, the insurance is just gravy. This is why airlines have typically provided their pilots with term life insurance plans. The plans make sense for newer pilots with low net worth and lots of time ahead of them. The GVUL just improves on that model.

It’s important to note that while the GVUL has a longer scope than a term life insurance policy, it’s not whole life insurance…and thank God!

Whole Life Insurance – Waste or Outright Scam?

I don’t talk about it much because I don’t even think it deserves my conscious thought, but I believe most whole life insurance policies are a bad deal.

Unlike term insurance, these policies are for your whole life…they’re a guaranteed payout. As such, they’re a unique type of asset. You can borrow against their value, and there are ways to cash them out early.

This all sounds great until you ask about fees. And this is the biggest problem because those fees tend to be so high they’re borderline-unethical.

A typical whole life policy might start with an up-front fee in the range of $40,000 or more…and then you have to continue paying premiums every month or every year! Yes, this could immediately give you access to a $1M+ asset, but those fees are outrageous.

If you’re working with a financial advisor who starts pushing you hard to buy a whole life insurance policy, I would consider walking away immediately. At the very least, put your foot down and say, to their face, that you will walk if they ever mention such a thing again. Then, start shopping for someone better anyway. I can recommend a few good advisors.

Unless you’re in danger of dying in the next few years, you’re far better off investing that upfront $40K fee and your premiums almost anywhere else. Those investments would likely surpass the value of your life insurance payout long before you pass away.

If you’re in danger of dying soon, you’d be better off with a term life insurance policy anyway. It’s far cheaper and shouldn’t include such ludicrous fees.

Some people on the internet try to sell whole life insurance policies by preaching what they call the “infinite banking concept.” I’m unimpressed. It is a viable way to access capital early in your life to start investing. However, the fees benefit the person selling you the policy far more than the “easy” money benefits you. There are so many other ways to get capital for alternative investments! Don’t take money this expensive unless you’ve exhausted absolutely every other option…including just putting your nose to the grindstone and doing some extra flying for a couple years to save up what you need!

Why Would MetLife Offer GVUL?

I’ve encountered a few people asking why MetLife would offer Delta pilots a plan like the GVUL. MetLife is also the provider of their old term insurance policy, so how do they benefit from pilots switching? Inquiring minds also wonder why the government is suddenly willing to excuse these premiums from imputed income.

Part of me says: “Don’t know, don’t care.” It’s a benefit to pilots, so why not take it?

I think part of the reason that MetLife likes this plan is it includes a completely separate and completely optional provision: the ability to invest money in the stock market, with some big tax advantages. MetLife will make money by charging fees on those investments.

Let’s reemphasize: you can opt in to the GVUL and get all of its insurance benefits without using the investment part of the plan at all. Whether the investment side of things is a good deal or not, it doesn’t affect the value of the insurance side of the GVUL.

I’m putting together a fancy calculator spreadsheet to illustrate the tax benefits on the GVUL’s investing option. The calculator will also account for MetLife’s fees. That discussion is involved enough that I want to save it for later. My calculator also still needs a little work.

Thankfully, there’s no rush. The open enrollment windows for the GVUL won’t end for about a month, and then you’re free to invest as much or as little as you want at any time.

In the meantime, I simply cannot find any harm in opting into the GVUL for life insurance.

(So why is Uncle Sam suddenly giving us such generous tax breaks through the GVUL? I cannot fathom anything except the right legislators getting the right number of fancy steak dinners and other thank-yous from insurance industry lobbyists. You might be tempted to tell me to stop binging House of Cards. However, I would then ask if you’ve been following the drama over the conflict of interest concerns currently under scrutiny for Supreme Court Justice Clarence Thomas. Do I like lobbyists being able to exercise such strong influence on our government for relatively tiny special interest groups or even individuals? Well, no…except that I benefit from such things in many areas of my life. Will I use these kinds of loopholes to my advantage when I can? I guess so, and I guess I hope we can eventually find a better way to run our country.)

Parting Shot – Soft Pay Matters in Pilot Contracts!

Before we go, let’s consider how great this insurance benefit is for Delta pilots. Their contractual death benefit is 2,500 times the top line Captain pay rate for all pilots.

Airline execs and union bosses love to throw around the phrase “industry-leading contract” these days. No individual contract is likely to ever be the true best in the industry in all areas, so a leader (or in our industry more likely: manager) of integrity should probably qualify such statements with a caveat like “in most areas,” or “from pay, to vacation, to scope, etc.”

As a case in point, the United pilots just secured a great new contract valued at an increase of $10B. This contract is a victory that includes great gains in many areas. Before I go further, I’ll say that I think United is an excellent company where any of us would be lucky to work. They constantly push Delta to be better, and are probably Delta’s most worthy and threatening competitor. If I’d been dead-set on settling in Denver, Houston, Chicago, DC, or northern California, United might have been my #1 choice.

However, the United pilots’ life insurance benefit is drastically inferior to both what the Delta pilots had in their old contract, and what they get under the new GVUL.

In Section 24-I-1-a of the United pilots’ TA, a United pilot’s “Basic Life Insurance” benefit is “equal to the Pilot’s hourly pay rate times 2,052.” For a United new-hire FO, this looks like:

2,052 x $116.05/hr = $238,134.60

Remember: that new-hire FO’s peer at Delta starts with $1.1M in coverage from day one, more than 400% the coverage.

If the most senior pilot at United decided to be a B787 FO for Quality of life reasons, their death benefit would be:

2,052 x $305.50 = $626,886

Yes, that’s a lot of money, but it’s still barely more than half what the most junior Delta pilot gets from day one. Then, consider all the other tax advantages and benefits that Delta pilots enjoy under GVUL. This highlights a stark difference between these two contracts. 

This is why soft pay matters in a pilot contract, and why only a great fool would evaluate a pilot contract based entirely on something as insufficient as straight pay rates.

If you’re deciding which airline to join, ask around about soft pay before you bite off on a contract with fine print that fails to meet your needs. If you’re already at your forever home, pay attention to discussions of soft pay at other companies and ensure that your union reps know what kinds of soft pay increases you expect in your next contract. For airline pilots, “industry-leading” pay rates are table stakes. Demand that your union negotiates to ensure that you get Scope protection, Quality of Life, and Soft Pay benefits that push the meaning of “industry-leading” as well.

Thanks for reading. If you’re eligible for Delta’s GVUL, November 1st is the start of the two-part opt-in window. Yes, you have to actively opt-in, or you miss out for a year. No, I cannot find a reason to not opt-in.

Standby for a discussion on the investing side of the GVUL. It may not be a usable benefit to for you, but the tax advantages and access to more of Delta’s money may make it very valuable for many pilots.

The Power and Limitations of Networking

Before COVID, airline hiring conferences were big business…and they were horrible! Attendees paid hundreds of dollars (plus travel expenses that we’ll enumerate shortly) to stand in line for 8-10 hours in hopes of getting 15 minutes with an airline recruiter who’d spent those same 8-10 hours looking at nearly identical resumes and having essentially the same conversation every 15 minutes. Gag!

The death of this type of hiring conference is the only COVID casualty I celebrate.

During COVID, major airlines let thousands of pilots retire early. Then, the post-COVID recovery happened more rapidly than anyone could have imagined and every airline found itself desperately short on pilots.

Despite scoring applications as quickly as possible, airlines realized they needed some other way to get to candidates. Thanks to an enlightened desire to include more people in this awesome profession, most airlines have also discovered a desire to increase hiring from among demographics with less representation in the pilot community.

These pressures led to a rebirth of the airline pilot hiring conference. Events like NGPA, WAI, TPNx, RTAG, PAPA, and others have enjoyed attendance of any airline serious about hiring pilots in this post-COVID boom. These conferences are formatted somewhat better than their previous iteration, though it’s always a delicate balance between honest Networking event and pilot meat market.

I frequent some online groups for low-time pilots and constantly see new aviators ask whether they should attend these conferences.

Responses range from, “Of course you should! You can never start Networking too soon!” to more balanced perspectives. I lean toward the latter of those two, and I’m writing this to illustrate my reasoning.

Yes, Actual Superpowers

Of all my online articles, I’m particularly proud of this one: Networking – The Pilot Superpower. If you haven’t read it, you should, but the title says it all. I have enjoyed fantastic opportunities, both inside and outside aviation, thanks to Networking.

Even better, I’ve been able to leverage my personal network to play matchmaker for others. I’ve helped friends and even acquaintances enjoy fantastic opportunities, both inside and outside aviation, thanks to Networking.

I hope my article on the subject explains how much I stand in favor of Networking. Before that article, I also wrote another post about Making Your Own Stars Align. It’s tangentially related, but worth reading. For many opportunities, especially in aviation, some effective Networking can be the last little nudge that locks those stars into their neat little row.

I believe most pilots would benefit from learning about effective Networking much earlier in their careers. This means my fellow CFIs and I need to ensure we understand Networking ourselves, and that we spend time instructing our students on that important discipline. (Yes, being a CFI means more than just teaching about stick & rudder.)

Practical Limitations

As strongly as I support the idea of genuine Networking, I believe it’s critical for us to understand that it has its limits.

If a 250-hour Commercial pilot were to show up at an airline hiring conference expecting to have a productive conversation with the United Airlines recruiters, that person will be sorely disappointed.

Those recruiters will be polite. They’ll appreciate the young pilot’s enthusiasm, probably remembering what it was like to walk in those shoes many years ago. They may be able to offer some useful overall career advice.

However, when it comes to landing a serious airline job, there’s nothing they can do. This candidate is more than 1000 hours short of meeting United’s hiring minimums. There is nothing in their corporate structure that allows them to give this aspiring aviator anything concrete. (Blame it on their blood-sucking lawyers!)

Now, these recruiters will certainly encourage a young pilot to apply for their Aviate career pathway program. However, our intrepid young pilot doesn’t need to attend a hiring conference to get that shot. All it takes to apply for that program (and/or similar programs at other companies) is to go to the website, read the instructions, and then correctly follow those instructions.

Make no mistake: the airlines need more pilots than are currently available. You do not need a “leg up” to get serious consideration from a pilot pathway program. Anyone who tells you otherwise is selling something. If you can’t tell what they’re selling, then you are their product.

None of this means that United is being mean to our young pilot. They simply have standards they must uphold, and can’t do any favors for anyone who has failed to meet those standards.

(Again…we can and should blame the lawyers here, though we can probably all agree that this is morally correct position despite the attorneys’ involvement, right?)

Remember: Networking is not and can never be an excuse to give someone a benefit for which they are unqualified. That is a completely different concept called patronage…and I hate it even though I (perhaps unfairly and certainly unintentionally) benefitted from it during my active Air Force service.

It’s tough to be on the senior side of a mentoring-type Networking relationship. You invariably like the person with whom you share a connection. You want them to succeed. You wish you’d had someone like yourself when you were their age to provide advice and feedback. It’s damn tempting to start helping the unqualified because you believe they deserve it.

The idea of deserving, of being entitled to, something is dangerous. We see this in sticky situations throughout our society. In the military, this results in bad (non)leaders being placed into choice assignments or even command roles for which they’re unsuited. In business, this results in lost productivity and profits, or worse.

In aviation, this can be deadly.

As a pilot you should never ask someone to give you what you have not earned. It’s not fair to you, your family, your customers, or your employer.

Easy Straightforward Solution

Thankfully, the solution to avoiding patronage in aviation is straightforward: do what it takes to earn new opportunities.

Yes, I know. That’s expensive, difficult, and time-consuming. Not every pilot is blessed with the ability to ride the US Government gravy train as a military pilot, or has the savings or credit history to easily fund flight training. That doesn’t mean it’s okay to cut corners.

I wrote a 6-article series suggesting several ways for aspiring pilots in tough spots to affordably break into this industry. I firmly believe that any person willing to work hard can put those strategies to use and make it to a dream job in aviation.

On a more practical level, this makes the decision on attending an airline hiring conference simple. Are you at or very near the minimum requirements for one or more companies at that conference? If so, then attending might be worthwhile.

If you’re nowhere near anyone’s minimums, then you’re far better off staying home and working on reaching those minimums. What would it cost you to attend that conference? Put the same amount of money into getting another rating, buying a block of flight hours, or just paying your rent while you hunt for low time pilot jobs at home. Speaking of which….

Low Time Pilot Jobs

The new wave of hiring conferences has been extremely successful, with pilots showing up in droves. Although big-name airlines are benefitting from this, many smaller employers have also realized they can show up and accomplish some meaningful recruiting among lower-time pilots who need a few hundred hours before the airlines will hire them.

This means these hiring conferences can still provide excellent opportunities for pilots nowhere near big airline hiring minimums.

For a pilot who has run out of other options, attending one of these conferences is a great way to get an entry- or mid-level pilot job that can help bridge the 1000+ hour gap between earning a Commercial Pilot certificate and reaching ATP minimums.

If we stopped this discussion right here, we’d have easy decisions for everyone. It doesn’t matter who you are or how unqualified you might be. Show up at any of these conferences because there’s probably someone willing to offer you a job within 249 hours of your current total flight time. If only it were that simple!

Real Costs

Thankfully, hiring conference ticket prices have gone down over the years. Tickets used to cost several hundred dollars, with fast passes available as up-charges. Again, gag!

I happen to know the guys who run TPNx, and know that it costs them far more than my wife and I spent on two weddings to host their conference each year! They charge a (nominal, though not insignificant) fee for people to attend. They also do this because they know that putting a $0 price tag on a thing leads many consumers to treat that thing as though it has no value. With limited airline interview slots available, they don’t want to waste anyone’s time by having a potential attendee back out at the last minute because there’s no associated monetary cost. Sadly, that happens a lot. People are weird that way.

Some conferences these days believe their attendees are more reliable, more hungry, or both, and offer free or very cheap admission anyway. You’ll hear their promoters go on and on about how everyone should attend because there’s no cost to the attendee. While that may technically be true when discussing entrance tickets, it’s at best a gross oversimplification. At worst, it’s disingenuous.

The First Law of Thermodynamics states that you can’t get something for nothing.

This is also true of hiring conferences. Let’s consider the range of costs you might encounter for attending something like the LPA Conference in St Petersburg, FL, later this month.

  • Airfare: $50-$200+ in each direction
  • Lodging: $50-$150 per night
  • Local Transit (Airport shuttles, Ubers, and or rental car): $10-$100 per day
  • Materials Prep (Resumes, printed on decent paper, business cards, etc.): $10-$100
  • Wardrobe (a nice, well-tailored suit + accessories): $300-$1000
  • Food: $25-$50 per day, if you don’t attend any parties or go drinking with friends
  • Conference tickets: $0-$400+

If you go the cheap-o route, buying a suit from Goodwill because it might not even fit by the time you get your next 1250 hours and do airline interviews, staying in a roach coach motel, eating off the Taco Bell value menu, flying on an uncomfortable ULCC, and only walking or taking the airport shuttle, you might be able to get through a weekend conference for as little as $500.

If you’re interested in actually looking good, you want to stay somewhere at least safe and hygienic enough to get some decent rest, and you want to go out to dinner with some friends (see also: Networking), these costs could easily pass $2000.

Holy cow!

For a low time pilot who just buried themselves in debt just to get to the 250-hour mark, $500 is a lot of money. Spending a couple thousand on something like this is downright crazy. Do not let anyone tell you that attending a pilot career conference is free!

What could a pilot do with that money? At the school where they just got their ratings, adding on CFI, CFII and/or MEI would certainly be within reach at those prices. A seaplane add-on can be done for about $2100 at Jack Brown’s, and a Glider rating could be even cheaper. A tailwheel endorsement should be attainable at the low end of that $500-2000 range. Those are expensive ways to get a few hours, but you’d be shocked at the employment opportunities they open up!

A low-time pilot could use that much money to buy a block of flight hours. They’d only get a handful in a twin, but I’ve seen deals offering time in singles around $100/hr.

For many low-time pilots, that chunk of change might be enough to cover rent and basic living expenses while shopping for a local flying job, which brings me to my next point:

Shop Local

Before you travel to some fancy, expensive conference you should (and I’d rather say “must”) exhaust options in your local area.

There is a very high probability that employers in your local area want to pay you to fill low-time pilot jobs. I’ve rarely heard of a flight school with too many instructors before the airline hiring boom. Nowadays, I suspect any school would welcome help. There are also always opportunities for tour operators, banner towing, glider towing, dropzone pilots, small freight carriers, pipeline patrol, survey, small charter services, and so many more jobs!

As long as a job is safe and provides a reliable source of flying hours and experience, you should not pass up a good opportunity in your area.

This isn’t to say that you shouldn’t be willing to move. On the contrary, I’ve known too many pilots who feel entitled to a safe, high-paying, non-CFI flying job in their local area. One of my buddies refused to move in pursuit of better jobs, then had the audacity to complain about not being able to find the types of jobs he wanted.

As a pilot, you must be willing to go where the work is. However, moving isn’t free. Also, the sad truth is that low-time pilot jobs are not the most steady form of work. I’ve heard countless stories of a pilot moving far from home to pursue a job, only to be told that the owner sold the aircraft, or the contract dried up, or someone bent the airplane and it’ll be down for months.

Moving for a job is absolutely the right call, but only after you’ve exhausted options for good, safe jobs in your area.

Local Networking

Remember that we started this all off with a discussion of Networking. If your flight instructors, family, and friends know you as a hardworking person, you already have a strong base to start Networking in your local area. Have you asked your flight school if they know of anyone hiring? I guarantee they’ll give a strong recommendation for a sharp, hardworking graduate of their flight program. I guarantee they know aviation employers in your area and frequently discuss job opportunities.

If you want to start meeting people, there’s nothing easier than driving (or even better flying) to all the local airports in your area. You can start by just wandering around with a stack of business cards and resumes in hand and introducing yourself. This is essentially the same as attending a fancy hiring conference, except you can do it every day of the week for the cost of gas.

If you try this strategy, you may be surprised at how many connections you already have through your family, your church or other community organizations, your schools, past employers, etc. Those types of things are the basis of effective Networking.

Compare this to attending a pilot hiring conference. As a low-time pilot, you’ll be a stranger to everyone present. You will wisely be doing what Networking you can, but it’ll be a slow start and you’ll be just one little fish in a big pond full of similar looking fish. It’s tough to stand out in that crowd, compared to driving to places near home and being the only professional-looking pilot in months to show up. (Uncle Emet’s hints: Get a haircut. Shave, shower, and comb your hair. Put on a clean shirt with a collar. Wear khakis or similar pants and shoes slightly nicer than sneakers. Confidently introduce yourself, shake hands, look people in the eye.)

If you’re offered a low-time job at a hiring conference, you’ll need time to relocate before you can start working. If you’re Networking near home, you could get invited to fly/interview on the spot. Great! Your headset and EFB are in the car. Here are my logbook and resume to pursue while I grab them. If you get hired, you can literally start that same day, then drive home that night after work.

Time and Place

Let’s take a step back and consider the point of this whole discussion. Your goal is to earn a shot at a great flying job. You want a major airline, or a corporate gig flying G800s around the world, or something else equally compelling.

In order to reach that, you first need to get from 250 hours total time to 1500 hours total time without going bankrupt. Even when you reach 1500 hours, you’ll need to earn your ATP and then probably get a job as an FO at a regional airline or ULCC, or in the right seat of an Embraer Phenom 300.

Yes, you may need to attend a hiring conference to get that 1500-hour jet job. However, you won’t be competitive for that job as a 300-hour Commercial pilot. You need to do whatever it takes to bridge that 1200-hour gap as quickly, safely, and ethically as possible. Attending a hiring conference for that job as a 300-hour pilot will not help.

You could spend a lot of money trying to get a low-time pilot job at an expensive hiring conference. However, before you try that, you are far better off at least checking for opportunities in your local area. You could save your money and put it toward flight hours, advanced ratings, or even just rent, while you pursue local employment opportunities.

Let’s also note that hiring conferences are not the only way to get a non-local job. Employers post low-time pilot jobs all over the internet. After a day of job hunting/Networking at local airports, you can and should hop online to check job websites, message boards, Facebook groups, LinkedIn, and countless other sources for jobs. You’ll be able to apply for these opportunities from your couch without having to spend a dime.

You can and should also be asking every person you speak to locally if they know of any far-away employers looking for pilots. Aviation is a small world, and an in-person Networking interaction like that will be every bit as effective, if not more so, than a hiring conference attended by hundreds of pilots with resumes just like yours.

You can and should also spend your evenings submitting online applications to pilot pathway programs for a variety of companies. (Just be careful which ones you choose. I strongly recommend not locking yourself into a pipeline for your #1 or #2 airlines. Instead, pursue pathways for your #3 and later choices as backups. This will preserve your ability to apply outside the pipeline for your top choice companies.)

If you’ve truly exhausted all your local options and can’t get any traction with remote applications, then by all means try a hiring conference! You’re far better off moving away from home and taking a good job elsewhere, than sitting around in your parents’ basement complaining that nobody’s giving you the local job to which you feel entitled.

However, don’t let someone convince you to spend your money attending a conference, before you’ve exhausted local options, when you’re so far below the minimums for the airline/jet jobs that are at the heart of those conferences.

I wish I could promise you this path would be easy. I wish airlines could interview and give firm job offers to pilots the moment they started training. Unfortunately, that’s not going to happen. Keep working hard, because the end result is worth it!

Do right by your employers, be safe, stay out of trouble, and treat any personal interaction as a potential Networking opportunity. If you can earn a good reputation, it will follow you! Aviation is a small community and the more you get known as a safe, effective, reliable pilot, the more opportunities you’ll get. A hiring conference may be a step in that process, but don’t break the bank on one until it makes sense.

This post’s feature image is from Paul Hanaoka on Unsplash

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.

Fees

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.

FedEx MBCBP Considerations

Disclaimer: this post, along with everything else on this website, is the personal opinion of a random dude typing on a computer. It is not endorsed, approved, vetted, sponsored, or tied by or to any other person or organization. I humbly ask you to treat it as such.

This post started as an examination of the Market Based Cash Balance Plan (MBCBP) offered in the FedEx pilots’ TA. I’d written similar material about the Delta pilots’ new MBCBP. Aware of my past work, several Purple pilots asked my opinion on their MBCBP offering. I figured I’d write a single post to cover some basics, rather than continuously duplicating my responses, and hopefully help other curious pilots as well.

As friends started explaining more about their TA, and as I dug into the TA documents, I formed a very strong opinion about the Tentative Agreement itself. Feeling that the overall TA represented important context for understanding and evaluating the MBCBP, I ended up writing a post laden with my personal opinions.

I got a lot of responses. The overwhelming majority of those responses were positive. They agreed with my evaluation. I knew they would because I’d gathered input from several very smart Purple pilots before I wrote a single word.

However, some other readers felt slighted by my opinions.

I apologize to those with hurt feelings. I intentionally use a snarky writing style to keep attention and spur active consideration, rather than passive consumption. I like to think of myself as supportive of all people no matter their identity, background, or beliefs. I regret if I failed to live up to that ideal for you.

So, I’ve deleted my original post and associated comments. What follows focuses on a discussion of the proposed FDX MBCBP. I make references to and comparisons with the DAL MBCBP when valuable. However, please understand that these two plans are very different because they were created for different goals. That’s okay.

I just want Purple pilots to understand how their offering stacks up against the rest of the industry. I also think they have some questions to take back to their MEC. If they happen to get a chance to renegotiate any MBCBP provisions, I want them to know what may be possible because it’s already been approved by the Treasury for another group of airline pilots.

In my first attempt at this completely revised version of this post, I made a statement about Scope, the most important part of any pilot contract. I’ve been asked to remove that section, so you may notice it missing here.

MBCBP

Let’s move on to the MBCBP. In general, this is a good deal for many pilots.

MBCBPs are not uncommon in corporate America. The IRS caps total contributions to a 401k account at $66,000 per year (in 2023). Many high income earners want an additional tax-advantaged saving and investing vehicle. A MBCBP is exactly that: a way to defer taxes on more than the IRS limit of $66,000 per year.

MBCBPs fall under the same rules as Defined Benefit (DB) plans. One of those rules says that if a company offers this type of plan, every employee in a given employee group must participate. That’s not ALPA or our company trying to force anything upon us. That’s the US Department of the Treasury.

This rule means that every future pilot at an airline with a MBCBP will be required to participate. However, for pilots who worked at an airline before a MBCBP was enacted, the Department of Labor’s Railway Labor Act (RLA) also applies. The RLA requires pilots (and to a lesser extent their employers) to maintain status quo when negotiating new contracts. (Listen to Episode 12 of the Engage podcast for more detail on this part of the RLA). The status quo mandate in the RLA provides a loophole whereby the Treasuring is allowing pilots an irrevocable, one-time choice on whether to participate in a new MBCBP or not.

It’s good we’re getting this option. I believe that every airline pilot facing it should consult a Certified Financial Advisor before making their choice.

For FDX pilots, the MBCBP is also an opportunity for the company to reduce their burden for funding their legacy pilot pension plan. For pilots who choose to participate in the MBCBP, it will replace their pension altogether. For these pilots that’s a fantastic opportunity!

The FDX TA specifies that pilots switching over to the MBCBP will immediately receive “contribution credits” equivalent to what they would have had if they’d been participating in this plan for their entire career. For senior FDX pilots, this could easily result in a seven-figure balance in the MBCBP the day it’s enacted.

Both the Purple and Widget MBCBPs include a provision allowing pilots to start withdrawing money from the plan at age 59 ½, and then annually each year thereafter until retiring. Again, for senior FDX pilots, this is an enormous benefit. Many should be able to switch to the MBCBP, immediately get a very large balance in the plan, and then immediately transfer those funds into an IRA.

They will have full control over how the funds in that IRA are invested. That’s a personal account in their name that nobody else can touch. The fact that participating FDX pilots get contribution credits based on their entire career is a triumph, and a much better deal than Delta pilots get because they lost their pension more than a decade ago.

Administration, Fiduciary Duty

One of the restrictions that the Treasury puts on MBCBPs is that it does not allow individual participants any control over the fund’s investments. The entire fund must be managed by a third party. The participants can specify investment goals, but cannot have direct control over how the third party administrator pursues those goals.

The Delta pilots’ MBCBP will be administered by PriceWaterhouseCoopers. The proposed FedEx pilots MBCBP would be administered by FedEx itself.

In theory, each plan’s administrator bears a fiduciary duty to the plan’s participants. The concept of “fiduciary duty” is very important in finance, and represents a binding, enforceable obligation for a service provider to act in the best interest of their client.

It is advantageous that neither Delta Air Lines, the Delta ALPA MEC, or the Delta pilots themselves can directly control the MBCBP, and that their third party administrator bears a fiduciary duty to the Delta pilots.

The fact that FedEx itself would administer its pilots’ MBCBP could potentially represent a conflict of interest.

This fact bears detailed consideration by all FedEx pilots, especially those considering participation in the new MBCBP. If I were part of that group, I’d ask my union reps if there was a way to assign a different administrator who may be less vulnerable to a conflict of interest.

Expected Returns

A MBCBP is valuable because it defers taxes, giving your money time to grow before the government takes its cut. However, since these plans are required to preserve capital and serve a diverse group of investors, they usually target investments with low volatility. This frequently also means investments with low returns.

Traditionally, MBCBPs might invest in bonds or Treasury Bills for which a 3% return would be very high. That type of return is so low compared to the performance of a low-fee whole-market index fund, that in some cases it would be more advantageous for individuals to take the tax hit up front and invest on their own.

The Delta pilots’ MBCBP got approved to invest in somewhat riskier securities that offer somewhat higher returns. The fund that PWC has chosen to invest in for now enjoyed annual returns upwards of 8.5% before the current bear market.

I have been unable to determine based on available documents what investing strategy the FedEX pilots’ MBCBP would use. It will be very important to find this out before choosing whether to participate or not. Only after a pilot knows the fund’s target/expected return can they have a meaningful discussion with a Certified Financial Advisor on whether it makes sense to participate.

Trust

One major advantage of the MBCBP is that the money is protected from an airline’s creditors in case of bankruptcy. The funds are all commingled and each pilot’s “account” is sort of theoretical until the money is withdrawn. However, it is very well protected.

Even better, Treasury rules require each pilot’s payout to never be less than the amount of capital invested on his or her behalf. If a market downturn has a pilot’s theoretical account balance below what was invested, the airline is required to make up the difference out of pocket. That’s a good provision.

Many FDX pilots will choose to not participate in the MBCBP, instead sticking with their traditional pension.

While that may be the best option for many senior pilots, it’s worthwhile for more junior pilots to consider how confident they feel in the long-term solvency of their pension benefits. FDX is one of the few airlines, let alone American companies, that still offers a traditional pension. If you ask a pilot at almost any other airline, they’ll tell you a frustrating story about how the promise of a very lucrative pension vanished, practically overnight, due to circumstances far beyond their control.

A MBCBP may offer protections for a pilot’s earnings that a pension cannot. How much to trust either of these vehicles will be a very personal decision.

MBCBP Purpose, Funding, and Caps

Although the general purpose of a MBCBP is to provide tax-advantaged savings above the annual IRS 401k limit, the FDX plan is intended as a direct replacement for the legacy pension.

The DAL MBCBP is also generally intended to replace a lost pension, but it’s not structured as a 1:1 replacement nearly as much as the FDX plan is. I’ve encountered a great deal of confusion over this, so please take an extra moment or two to notice the specifics in this section before sending me feedback.

FDX pilots’ 401k is funded through a combination of a 9% company Direct Contribution (DC), extra hours in a sick bank, and personal contributions. This combination of sources can put up to $66,000 per year into a FDX pilot’s 401k account. Note that the IRS limits the company’s 9% DC to the first $330,000 of a pilot’s annual earnings. (That limit tends to increase each year).

The proposed MBCBP would be funded by a separate 11% company contribution. Based on information in some of your MEC’s materials, and at least one frustrated comment to my original post, it appears that this 11% contribution will happen in parallel to funding of a pilot’s 401k account. The 11% MBCBP contribution will also be limited to the first $330,000 of a pilot’s income meaning the absolute maximum that could possibly be contributed to a pilot’s MBCBP would be $36,300 per year. As far as I can tell, there is no other provision for putting more money than this into a pilot’s MBCBP in a given year.

This means the absolute maximum that a FDX pilot could protect in tax-advantaged retirement accounts would be $102,300 per year.

The DAL pilots’ setup is quite different.

Delta pilots get a 16% company DC into their retirement accounts. Under their new contract, this DC increases to 18% in a few years. For these pilots, absolutely nothing is contributed to the MBCBP until after their 401k account reaches the annual IRS limit of $66,000.

In general, it’s always desirable to maximize contributions to a 401k first because it offers the pilot better control over their investments, and more flexibility on how to use/withdraw the money.

Delta’s DC is subject to the same limit of $330,000 in income, meaning the most the company could contribute to a Delta pilot’s 401k in a year is $52,800. At either company, a pilot wishing to reach the $66,000 per year limit in their 401k must make up the difference with their own funds.

For Delta pilots not participating in the MBCBP, once the company’s DC reaches $52,800, or the pilot’s total annual 401k contributions reaches $66,000, the company’s 16% DC goes to the pilot as taxable cash each month. For pilots who choose to participate in the MBCBP, the entirety of that excess 16-18% DC will go into the MBCBP.

Note that there is no limit on how much money can be contributed to a Delta pilot’s MBCBP in a given year. I’ve run the numbers and found that it will be possible for the most senior Delta pilots to get more than $66,000 into their MBCBP each year, if they so desire.

This means the absolute maximum that a Delta pilot could protect in tax-advantaged retirement accounts will far exceed the annual $102,300 figure available to FedEx pilots. For pilots choosing to participate in their MBCBP, the Delta version offers a significant advantage here.

This setup also gives Delta MBCBP participants significant control over how much money is contributed on their behalf each year. It will be possible for a Delta pilot to make the one-time decision to participate in the MBCBP, but ensure that very little money actually makes it into the plan in a given year. Then, when that pilot wishes, they will be able to switch strategies and maximize MBCBP funding each year at the point where it becomes most advantageous.

If I were a FDX pilot, I would address this difference with my union reps. I’d hope that my union might be able to negotiate a way to get more money into the MBCBP for those pilots wishing to participate. I’d also prefer the option of having more control over how much money goes into my MBCBP in any given year.

Exit Options

As mentioned, both versions of MBCBP allow a pilot to start getting their money out of the plan at age 59 ½.

Delta pilots will have three major options for withdrawing their money from their MBCBP:

  1. One of a few types of annuity
  2. Taking a lump sum as (taxable) cash
  3. Rolling over their balance into a tax-advantaged account, probably an IRA. (This is a non-taxable event).

I suspect that FedEx pilots will have the same options for getting their money out of their MBCBP. However, the documents available only specifically mention options #1 and #2 above. This would be undesirable.

Annuities are frequently laden with unnecessary fees and provide lower payouts than a reasonably educated investor can achieve by managing their investments themselves or with cheaper help from a CFA. Subjecting a lump sum to a single, immediate tax hit negates the entire purpose of a MBCBP in the first place.

The FedEx pilots must clarify with their union reps whether they will also have the option to do a direct roll-over into an IRA as a non-taxable event. I suspect the failure to mention this specific option is an oversight. If not, it would be worth advocating for this provision to be added to the plan before electing to participate.

Conclusion

These two versions of MBCBP are very different. That doesn’t necessarily make one better or worse than the other. What matters is that each pilot considers how their plan’s provisions might affect them. This should absolutely be done with the help of a Certified Financial Advisor.

The FDX pilots’ MBCBP has some very attractive qualities. However, there are also some outstanding questions that need to be resolved before each pilot makes their decision.

I hope this helps you frame your questions for your reps, and your discussion with your finance pro.

I don’t plan to adapt my MBCBP Calculator spreadsheet for your plan. It would require a lot of redesign and reprogramming. However, you’re welcome to download your own copy and edit it as you see fit.

I don’t intend to allow comments on this post, based on the negativity I got in some comments on the last version. If you have a question that I might be able to help with before you go to a CFA, please reach out to me. If my writing has not been valuable to you, I hope other resources will be.

The feature image for this post represents a potentially wet leased aircraft.

MBCBP Participants Get a $330K Control Loophole

Apparently, some pilots have gotten themselves very worked-up over the fact that US Department of the Treasury rules state that if an employer offers something like our MBCBP, all members of a given employee group must be included. Some pilots plan to use their one-time, irrevocable chance to maintain status quo to not participate in the new MBCBP based largely on this fact.

I haven’t heard this drama first-hand. I left the angry widget pilot Facebook group a while ago (and my QOL has skyrocketed.) I don’t really care what Poor Old Joe does at this point, but before you listen to him, you should read about the loophole I just realized related to the mandatory nature of the MBCBP.

Frankly, I’m ashamed I didn’t latch on to this sooner.

Sorry for the clickbait-y title. I think this will make a big difference for a lot of pilots.

The Old 401k Horse Race

It used to be that any pilot wishing to maximize Roth 401k contributions had to “race” the company to fill up as much of their 401k with their own Roth contributions as possible. Each month, any money from the company’s 16% DC would (and could only) be deposited as Traditional 401k funds.

Some years, this led me to set my personal contributions at the maximum 75% allowed by Fidelity’s website. A senior Delta captain might have been able to reach the $66,000 total per year 401k contribution limit in February, especially if it was a good profit sharing year.

Then, about 18 months ago, Delta and Fidelity changed this policy to allow in-plan conversions for company contributions. (You may be able to read the details in MEC Alert 22-02.) This means that no matter who contributed the funds, the pilot or the company, those funds can all be converted into Roth 401k money.

This is a big deal! It’s easy and valuable for anyone who wants to maximize the Roth side of their account. (That may not necessarily include you. Talk with a CFP to find out whether it does.)

Note that the pilot will have to pay ordinary income tax on any funds converted from Traditional to Roth dollars. If that’s your goal, though, it’s worth it.

A pilot maximizing their own contributions to win the old horse race with the company would have ended up receiving a lot of 401k Excess (“spill cash”) for the rest of the year. I also didn’t mind this. It was like getting a 16% raise starting around March or April every year.

It turns out that we’ll be able to use a similar strategy to exercise significant control over how much money goes in to our MBCBP each year. Although it’s not full control, and it’s not a perfect solution, it’s enough control that it should tip the scales in favor of the MBCBP for many pilots.

Minimizing MBCBP Contributions

Let’s see what things look like if a pilot wants to minimize the dollars that the company puts into the MBCBP on their behalf this year. We’re going to use the MBCBP Calculator I built for this purpose. (Please, for the love of all this is good in this world, stop asking for permissions to view, comment, or edit this file. Just use “File -> Download” or “File -> Make a Copy” to get your own version.)

The key to making this happen is for our theoretical pilot to minimize their personal 401k contributions. Don’t worry about all of the other setup parameters in the calculator for now. Just make sure that the yellow box next to “Personal 401k (%)” is set to 0% like this:

For this exercise, we can ignore the middle part of this spreadsheet. (I even highlighted all those rows, right clicked, and selected “Hide Rows” to get them out of the way.) Here are this pilot’s results:

For this Year 8 B737 CA flying a lazy 72 hours per month, the only money that goes into their 401k for the year is the company’s 16% DC. This ends up being a total of $45,155 for the year. Note that since this is below the IRS limit of $66,000 (with some caveats we’ll discuss shortly) this pilot receives zero 401k Excess.

For a MBCBP participant, this would mean zero dollars were deposited into their MBCBP for that entire year.

This means that this pilot had full control over their MBCBP this year, despite having made a one-time, irrevocable decision to participate in the plan.

Think about the significance of that for a moment.

Maximizing MBCBP Contributions

Let’s say this pilot has an identical twin who loves tax-deferred dollars piling up in their MBCBP and wants as much money in it as possible. This twin pilot sets their “Personal 401k (%)” to the maximum 75%:

And here’s the result:

In this situation, the company only manages to get $11,289 into the twin’s 401k account. The twin maxes out their $22,500 annual IRS limit for regular 401k contributions and then uses the back-door (401A) option to put another $32,211 into their account.

(Note that the $32K 401A dollars are after-tax money, so our twin might as well convert them to Roth dollars. The $22.5K could be Traditional or Roth, but if this pilot is trying to maximize MBCBP funds, they’re probably trying to maximize tax deductions and would leave this portion as Traditional 401k. A Certified Financial Planner (CFP) can help you make that decision on a year-to-year basis.)

Since this twin hit the $66K per year IRS limit on their 401k in April, every other dollar of the company’s 16% DC for that year would go into the MBCBP. (In a year with good profit sharing, the twin would have probably hit the limit even sooner.)

Both pilots had the same overall compensation just over $327K. However, the second, maximizing twin put a total of $99,866 into tax-advantaged accounts while the minimizing pilot from earlier only put $45,155 into those types of accounts. The twin got an extra $54,711 in tax-advantaged income this year, and would pay a lot less in taxes.

What really matters though? Both pilots got exactly what they wanted.

The maximizing twin got the largest possible amount of tax-deferred income for the year, and reduced their tax bill. The minimizing twin prevented any money from going into the MBCBP, even though they’d made the irrevocable decision to participate in it.

The beauty of this is that each of these pilots has the power to continue changing their mind from year to year, even though they’re locked into the MBCBP.

Caveats

Let’s discuss two important caveats.

First, remember that pilots over age 50 get an extra $7,500 per year in their 401k, for a total annual contribution limit of $73,500. That could potentially allow a MBCBP participant to spend more years without putting money into the plan, if desired.

Second, there’s a limitation to this strategy that I haven’t addressed at all until now. In the convoluted bowels of the IRS code lies Section 401(a)(17). This section sets a maximum income limit for a person to receive company direct contributions for a 401k account. For 2023 this limit is $330,000.

Our contract addresses this limit, and after reaching $330K in total compensation for the year, we just get the rest as 401k Excess dollars. Starting in October, those dollars will go into the MBCBP for most pilots.

(I didn’t program the $330,000 compensation limit into my calculator. Apologies. That section was already complicated enough. Maybe I’ll get around to it at some point.)

This may require some manual calculations on your part. The key takeaway is that if you’re a MCBCP participant trying to use this loophole to minimize money going to that plan this year, the best you can do is 16% of $330K, or $52,800. Again, this loophole isn’t perfect, full control over the MBCBP, but it does allow participants to maintain a lot more control than I’d realized until a couple days ago.

For pilots who use my calculator and see that it doesn’t cumulatively make sense for them to start participating in the plan for a few years, this strategy could tilt that math in favor of participation now.

For pilots who want to look at the older decision point on my calculator from when we thought we’d be able to jump into and out of the plan from year to year, this strategy gives you most of that option back.

I hope this helps many pilots breathe a sigh of relief.

More Examples

You should use my calculator to try out some scenarios. However, let’s consider a few here. First off, let’s consider a senior Delta widebody FO. At today’s pay rates, this pilot could fly an average of 95 hours per month without a single dollar going into their MBCBP.

If this pilot decided they wanted to instead maximize MBCBP contributions, their results might look like this:

This pilot would be able to get $44,037 into their MBCBP, protecting a total of more than $104,000 from taxes. (Of note, that’s how much money I made in my first year at my airline. Impressive.)

Since this is the highest FO pay rate on our charts, pilots in any other aircraft should be able to work even more hours while being able to prevent any of their compensation from going into the MBCBP in a given year. That’s a lot of control.

Let’s look at some possibilities on the Captain side too.

On the low end, it appears that a senior B717 CA participating in the MBCBP could credit an average of about 91 hours per month without a single dollar being deposited into that plan:

A Captain at the top narrowbody pay rate would be more limited, only able to credit an average of 78 hours per month if the goal was to keep money out of the MBCBP:

A harder working narrowbody captain would end up with some spill cash going into the MBCBP, but it wouldn’t be an extreme amount. At 100 hours of credit per month on average, this captain would end up with less than $15,000 contributed to their MBCBP for the year. (The calculator only shows $1,104, but remember the stupid IRS rule that caps 401k contributions at $330K of income. That would trigger for this pilot around September.)

Even if this doesn’t meet 100% of this pilot’s goals, it’s still a pretty good deal overall. This would end up with $67,104 in tax-advantaged dollars for the year, in addition to $419,000 of regular income.

If the MBCBP will be the right answer for this pilot at any point in the future, would it be worthwhile to reject that option forever based on an extra $15K going in to tax-advantaged accounts this year? I say no.

So What?

Some pilots seem to erroneously assert that choosing to participate in the MBCBP will lock away large portions of your income until retirement. That uneducated opinion could lead pilots to miss out on a great opportunity.

Most MBCBP participants will retain the ability to choose how much money gets contributed to our MBCBP each year, up to the IRS’s 401(a)(17) income limit of $330,000 per year. (Note that this limit increased $25,000 from the 2022 number. I suspect it’ll continue to rise, giving us increased maneuvering room over time. This is good because our pay rates also continue to increase, and the company’s DC rises to 18% by the end of our new contract.)

For pilots with incomes high enough to exceed that limit, the amount of spill cash that ends up in the MBCBP won’t be so much that it should ruin anyone’s short-term financial plans. I think that many pilots will be better off participating in the MBCBP, using this loophole to exercise significant control from year to year, and then using their time from now until age 59 1/2 to plan how they’ll put their MBCBP funds to use once they can roll them over to a (potentially self-directed) IRA.

That’s just one guy’s opinion though. Run the numbers for yourself. Then, go talk with a financial pro who can give you some authoritative advice. Then, let yourself ruminate on things for a while. The window for choosing to maintain status quo and not participate in the MBCBP doesn’t close until the end of July. You have some time to think things over before you make a decision.

Thanks for reading this far. I hope this helps your family meet your financial goals. Fly safe!

MBCBP – Detailed Update w/ Zoom Links

We’ve received a lot of information since I first posted about the Market Based Cash Balance Plan (MBCBP). I worry that some pilots are latching on to incomplete information and risk making decisions they’ll regret.

So, I’m trying to put out some better information with a hint of context. Other than saying the MBCBP is a good opportunity for most pilots, I’m trying to avoid outright opinion. Why? Because this is not tax, investing, or official finance advice. This discussion is for informational purposes only.

No matter what you hear or read from anyone, you should absolutely talk with a professional financial advisor before you do anything permanent. Speaking of permanent…

Maintain Status Quo

As promised, the Delta MEC preserved each individual’s choice to participate in the MBCBP…to the maximum extent allowed by law.

However, the way this works is not what I’d hoped. Instead of being something that pilots can jump into or out of, participation in the MBCBP is a one-time, irrevocable decision.

Don’t let this scare you too much. The volunteers at your MEC have been working on this for more than 5 years because you asked for help reducing your tax burden, and increasing your tax-advantaged retirement savings. This is the best tool we’re going to get for meeting those objectives.

This type of plan is not uncommon in the corporate world. These plans are governed by the Department of the Treasury, an organization with reach far wider than a few pilots at one airline. The Treasury’s rules require that if an organization offers a plan like this, all employees must be included, no exceptions. This isn’t something that Delta or ALPA decided, it’s a mandate from the Treasury.

The only counter to this is that our beloved Railway Labor Act protects maintenance of the status quo above all else. This usually hurts us, a lot. However, in this case the Treasury is allowing the Labor Department’s rule to take precedence. Since the status quo for most of us hasn’t included a MBCBP, each of us has the opportunity to elect to maintain that status quo by not participating in the plan. This is a forever decision. You’ll continue to see the phrase: “one-time, irrevocable.”

This only applies to pilots hired before 1 June 2023. For anyone hired on or after that date, the Treasury and Labor departments decided that the MBCBP is part of their status quo, so they must participate.

Don’t Rush!

I feel like some pilots are acting like they must make a decision on this immediately. That would be a bad choice.

If you do nothing between now and the end of July, you’ll be automatically included in the MBCBP. For most pilots this is a good opportunity. It’ll be an easy, transparent, passive way for you to increase your savings and decrease your tax burden, two things I strongly advocate in Pilot Math Treasure Bath.

If you want to maintain status quo instead, and not be part of the plan, you will have to take action to file paperwork within a specific window from 1 June to 31 July.

Don’t rush. That’s two full months to make a decision.

Research everything you can about this plan. Then, go speak with a professional financial advisor! They can help you take a look at your specific financial situation and figure out what works for you.

Even they may not have the full perspective you need. We’ll discuss some of that later.

LIRIX

We have an official answer that the MBCBP will be invested in a 40/60 portfolio of stocks and bonds. Yes, this still reduces overall return, but also reduces risk (volatility).

For now, our provider has selected BlackRock’s LifePath Index Retirement Fund, LIRIX, to fill that role. No, it won’t remain invested in that forever because LIRIX is a lifecycle fund and will gradually shift away from that 40/60 balance. Our provider will have to adjust our investments to ensure that 40/60 balance.

LIRIX’s 10 year return is only 4.35% right now. However, note that the entire market is down this year. For just the year 2022, LIRIX was -15.31%, but VTI (Vanguard’s Total Stock Market ETF) was at -19.51%. So, LIRIX actually did 4.2% better than the overall market in a down year.

Prior to our recent recessionary environment, LIRIX had a long-term return in the 7.8% – 8.3% range. Past performance does not predict future gains; however, if you look at a chart comparing LIRIX to the overall market (using Vanguard’s VTI as a proxy) it looks like a less volatile version of the same thing with less overall performance. For example, here’s a chart comparing these two funds over the last year:

There’s roughly a 5% difference in performance, but you can see that LIRIX resembles a less volatile VTI. Here’s the 5-year chart:

When (not if) you talk with a professional financial advisor about all of this, they’ll complain that LIRIX has low returns. They’ll be correct, but these returns aren’t low like I thought they’d be. Over the very long run, it appears that LIRIX has only lagged the overall market by 3% or so.

You also need to ask yourself what your financial pro is trying to talk you into, if they say they don’t like LIRIX. If they’re advocating you simply invest in something like VTI instead, then they’re getting you better performance. If they’re trying to get you to let them pick stocks on your behalf, you’re much more likely to underperform the market.

Also note that if they want you to let them buy shares of VTI on your behalf, they’re likely charging you extra fees. The kinds of advisors you’re probably working with may want as much as 1% Assets Under Management (AUM). This would be a bad deal. I strongly recommend you only work with a fee-only financial planner. It’ll feel like it costs a lot upfront, but it’s far better than losing 1% of your investment every year.

Fees and Losses

Another good part about this new MBCBP is that we have official word that Delta will cover all fees for this plan. Also: your capital is protected. If the market is down when you retire, and your balance in the plan is less than the capital invested for you, Delta will make up the difference out of pocket when you retire.

There’s good and bad there, right?

You’d rather it be invested in something that will protect against loss. Sadly, that’s never guaranteed, no matter what you invest in. Even if you opt for status quo and choose your own investments, if the MBCBP is down then your other investments may be down as well, except that your personal investments wouldn’t be backed by Momma D’s deep pockets to at least make you whole.

It’s monumentally good that nobody else has access to the money in the MBCBP, not Delta, not ALPA, and not Delta’s creditors! Nobody can take the assets of this plan in case of a bankruptcy (God forbid!) However, if a pilot happened to retire during a bankruptcy, the market would probably also be in the tank. In that case, it is possible that Delta would not have the financial capacity to make that pilot whole, or that a bankruptcy court would allow Delta to evade that responsibility. Worse has happened to Delta pilots.

I feel like the MBCBP is far safer than the old Defined Benefit pension plan, but it’s not perfect. However, there is a good deal to help:

In-Service Withdrawals

We’ve officially received word that each pilot will be able to take an in-service withdrawal and roll their MBCBP funds over to a personal retirement account (like an IRA) starting at age 59 ½. Even better, each pilot will be able to continue doing these roll-overs annually until retirement.

This is huge!

I’ve noticed a lot of hand-wringing about the fact that this money is tied up, just like the funds in your 401k, TSP, IRA, etc. Getting access at 59 ½ is a great deal.

For most pilots, this gives you a lot of time to work with a professional financial advisor and prepare a place for that money to go. You’ll even have the option to roll your MBCBP dollars into a self-directed IRA and use it for alternative investments.

I speak with a lot of pilots who say, “I could make better returns and get superior tax benefits with my 401k Excess money by investing in alternatives like real estate or starting my own business.” This is true; however, it takes time and effort to find and learn those things. In discussions about the MBCBP, I’ve been telling pilots that if you aren’t already actively participating in those types of investments, you’re probably better off participating in the MBCBP.

There’s a lot of aspirational thinking in this world. The step from doing nothing to actually taking meaningful action toward alternative investing is a gigantic one. The learning curve from that to being effective at those investments is even steeper.

If you aren’t involved in alternative investments, but think you might be some day, why not participate in the MBCBP for now? Give yourself some time to learn and make mistakes. Then, by age 59 ½, you’ll have things wired. You’ll know some very effective ways to employ capital. You’ll be able to roll your MBCBP funds into a self-directed IRA and use that capital infusion to turbocharge your successful investment activities.

I worry that a pilot might avoid the MBCBP, but not do what it takes to effectively get into something like serious real estate investing, and end up regretting the fact that they spend several years doing nothing (or worse) with their money.

ALPA Dues

Right now, ALPA takes 1.85% dues from our 401k Excess dollars, even though those dollars have only ever been intended as retirement dollars in replacement for a lost pension. This is a bad deal that Delta pilots have been fighting and losing at ALPA National for years.

The MBCBP is inarguably a retirement account, so ALPA will not charge us dues on that money. This means choosing not to participate in the MBCBP costs you a 1.85% penalty upfront.

If you don’t like that, talk to your LEC reps. They’ll probably commiserate. They won’t be able to fix it though.

If you were to maintain status quo and hire someone to manage your money at 1% AUM, you’d be losing 1.85% upfront by paying dues, and then another 1% per year forever to pay your pro. That’s a lot of ground to make up for when specifying your investment return assumptions in my calculator. Speaking of which…

My Calculator

I built a spreadsheet to help individual pilots evaluate what the MBCBP can do for them. You can make a copy of or download the original one here. Please, please don’t ask to edit my copy. You can’t. Please use:

File -> Download

Or

File -> Make a Copy

To get your own version to edit.

Although this calculator will tempt you to make a decision about participating in the MBCBP, I strongly recommend that you speak with a finance professional anyway. This calculator is a great tool for facilitating that discussion. If you set up your numbers as best you can, then send it to your pro, they’ll be able to spend 10 seconds looking at it and launch into their advice. Please use it this way!

I originally built this calculator when I thought that we’d have the opportunity to jump in or out of the MBCBP more than once. The intent was to optimize the point in your career at which you would start participating.

Since the actual plan won’t work that way, the original point of the calculator is moot. I built an updated version that identifies a different kind of optimal point for participating. This is the columns and boxes in purple, or shades thereof.

This calculator only considers one year at a time – the next year of your participation in the plan. I built it that way because if it makes sense to participate in the plan now, it continues to make sense to participate in it until you retire.

If you participate in the MBCBP, your taxes will decrease. This calculator assumes that you invest those tax savings, every year, in a brokerage account of your own. If you don’t have the discipline to do that, the MBCBP becomes somewhat less attractive.

This calculator does account for taxes, in the current year and when you cash out your investments in future years. Yes, it differentiates between ordinary income and capital gains at appropriate places, within the assumptions I’ve mentioned.

The calculator shows you one year of ALPA dues saved by participating in the MBCBP. It does not show the ongoing effect of paying dues if you don’t participate in the MBCBP. Sorry, I just didn’t have time to cleanly program all of that once I found out about this.

Could this calculator be edited to show total balance over many years, allow you to specify changing aircraft over time, project pay increases or changing tax rates, or more? Absolutely! Please edit your copy to your heart’s content. It took a fair amount of programming to get my calculator to do the point it’s at, and I just didn’t have it in me to update it with any of those features. I apologize that it’s an imperfect tool. Sometimes you get what you pay for.

Part of the reason I feel okay not updating the calculator is that I don’t think this needs to feel like as big a decision as some people are making it out to be. For most pilots, it’s a good opportunity.

As I run the calculator, the MBCBP makes a whole lot of sense for anyone within about 25 years of retiring (and that’s not necessarily age 65). I think it also makes sense for any pilot not interested in adding a second full-time job as a real estate investor or business owner. Some pilots are already doing exactly that, and they already know what’s best for them.

There’s a small group of people who are getting hired so young that they’ll have closer to 35 or 40 years until retirement. They’re the subset of people on the bubble where it might make sense to run things on their own. However, that can only be decided after some serious discussions with family and a professional financial advisor.

Zoom Discussions

I hosted an unsponsored, unendorsed, non-authoritative discussion about the MBCBP a few days ago, and I think it was valuable for everyone who participated. I’m hosting two more of these discussions on Thursday, June 1st at 9:30 am and 9:00 pm Eastern time.

Before you attend, I ask that you at least be familiar with the contents of this post and both of these videos (original video and update video).

Here are the invite links. Please share them with your friends, but don’t post them on social media.

Topic: MBCBP Discussion with PMTB
Time: Jun 1, 2023 09:30 AM Eastern Time (US and Canada)
Join Zoom Meeting
https://us06web.zoom.us/j/89980523226?pwd=RnlKMERqM0JTOFcrWklmNG0vRjhadz09
Meeting ID: 899 8052 3226
Passcode: 506052

Topic: MBCBP Discussion with PMTB
Time: Jun 1, 2023 09:00 PM Eastern Time (US and Canada)
Join Zoom Meeting
https://us06web.zoom.us/j/81047768069?pwd=U2hnS053SkYweWxXazhESjNhcmQ1Zz09
Meeting ID: 810 4776 8069
Passcode: 954231

Any airline pilot is welcome, though we’re not going to spend time explaining MBCBP basics to non-widget pilots. Also, this is not an opportunity for ranting or pontification if you’re angry. This is an informational discussion, and an opportunity to ask questions.

My Zoom subscription allows a pretty large group. I don’t expect to exceed those limits, but if we do I apologize. If you want to get in, and can’t, please shoot me a message and we’ll look at setting something up another day.

MBCBP for Non-Widget Pilots

I’m ensuring this information is available to pilots from other airlines so can be fore-armed if (or more likely when) you’re presented with a similar option.

This plan is a marked improvement in retirement savings for US airline pilots. Delta has officially made it the industry standard. American’s recent AIP specified formation of a MBCBP. I suspect pilot at other airlines will soon get similar offers.

Worried About Checkride Failures? Ask Better Questions!

I’m tired of seeing this question:

“I just failed a checkride (or I’ve failed numerous checkrides). Will this hurt my chances of getting an airline (or other flying) job?”

If you know someone asking this question, please send them a link to this post. Here’s the definitive 3-part answer:

  1. Yes, failing a checkride will hurt your chances.
  2. The amount of hurt depends entirely on you.
  3. You’re asking the wrong question in the first place.

I don’t think you would have asked #1 if you didn’t already know the answer. Of course, failing an important pilot event is a negative. Repeated failures will drive a potential employer to wonder if you suffer from some underlying shortcoming that you’ve either failed to recognize, or worse, recognized and failed to fix.

And yet, most pilots experience failure at some point in their careers. I failed my initial glider Instructor Pilot checkride in the Air Force, and my T-38 Contact phase check in USAF Undergraduate Pilot Training.

In all my years, I’ve only known one person who had never failed a checkride. At his USAF retirement ceremony he boasted about completing 31 Air Force checkrides without so much as a single downgrade. That’s impressive, though he was a peculiar individual who had done things like blow tires on a landing zone in the middle of the night on a training flight. Even that checkride ace fell short of perfection.

Your Circumstances Are Not Unique

No matter what job you’re applying for, that company has hired pilots who failed one or more checkrides in the past.

Why do you think those other pilots got hired?

In many cases, it’s likely that when the person doing the hiring heard the circumstances of the failure, they realized that it wasn’t a sign of serious trouble. It’s not at all unlikely that the interviewer had failed the same checkride…potentially even for the same item.

It’s also common knowledge that some checkrides and some flight examiners are tougher than others. Initial CFI rides only have pass rates in the 70-80% range. If a single checkride failure was a condemning factor in future career opportunities, our world’s pilot shortage would be even more dire than it already is.

Attitude

There are probably also cases of pilots getting hired despite screwing up badly enough on a checkride that the average Chief Pilot won’t just pass it off as a bad day or a bad examiner. This probably results in a very uncomfortable interview experience. And yet, many of those pilots still land the job.

Why?

Put yourself in the interviewer’s shoes for a moment. What would you want to hear from an applicant?

I suspect that successful versions of this conversation do not involve the applicant acting cavalier about their failure, or blaming their failure on other people or circumstances.

Wouldn’t you rather hear an applicant take ownership of their mistakes? What if they followed that up by humbly stating a few concrete points they learned from the experience, then mentioned how they’ve changed their habit patterns to avoid similar mistakes?

I bet that attitude is more successful than, “The examiner had it out for me,” or “My flight school’s gouge packet didn’t mention that item.”

While a good attitude can result in successfully explaining an egregious checkride failure, it’s also important for those seemingly less-significant ones.

Did you fail your PPL check for a soft-field landing? Take ownership! State, specifically what you did wrong that day. Then, explain how you went out and became a master of soft-field landings and passed your re-check with flying colors. Don’t stop there though! Explain how this changed your checkride preparation strategy to hopefully ensure you’d never suffer from a similar lack of preparation on any other maneuver again.

A wise job applicant could make this a really outstanding interview question response. A terrible applicant would give a short, weak answer here, forcing interviewers to ask another boring, canned question that you’ll answer robotically with a response they’ve heard a hundred times. What do you think they’d prefer?

Job interview or not, every checkride failure is a chance for you to learn, improve yourself, and develop Grit. [Amazon affiliate link.] You’re more than welcome to take advantage of your failure, or choose to impotently piss and moan.

Digging Deeper

It’s pretty easy for even a mediocre job applicant to prepare a good response to a question about one or two isolated checkride failures. Having numerous failures makes things tougher. I’ve recently seen anonymous posts from pilots who have a surprising number of failures; many on important and expensive checkrides.

Let’s cut to the chase here.


I know that some people just have a lot of anxiety about taking tests. Some people also have a series of innocent mistakes. However, with your best interest at heart, I have to ask the rest of you:

If you’ve failed a lot of checkrides, have you ever sat down and wondered what it is about you or your approach to flying, training, and checkrides that contributes to this trend?

Asking Better Questions

This is the point where we can start asking better questions.

“Will this affect my employment chances?” is a lazy, and useless question.

Instead, you should ask good questions like:

“What is it about my approach to flying, training, and/or checkrides that has resulted in so many failures?”

“Is there something my peers do to prepare for these events that I haven’t caught on to yet?”

“When I finally have the hours to interview for my dream job, what do I want to be able to say about my failures, what I learned from them, and how I developed as a pilot because of them?”

I believe that every pilot is capable of improving their checkride performance if they will take the time for this kind of introspection.

In many cases, you’ll need more than just personal reflection to gain the most from these questions. You should actively and humbly seek out mentorship from authoritative sources like senior flight instructors, chief pilots, and professional pilots currently enjoying what you picture as your dream job to help you figure out these answers.

Spoiler alert: a crowd of random and unknowable commenters on social media is almost always incapable of providing anything approaching this kind of mentorship.

Bonus Pro Tip

We need to move on to another set of good questions, but first I have a bonus pro tip for checkride success.

You have the answer key for every checkride you will ever take. For FAA events, the defining documents for checkrides are called Practical Test Standards, or their evolving replacements, Airman Certification Standards.

These documents list every piece of knowledge you must have for the oral exam. They list every maneuver you have to do on your checkride, and the deviation tolerances for those maneuvers.

(Note that the PTS/ACT even allow “momentary deviations” outside these parameters. Sometimes there’s a gust of wind, a really bizarre instruction from ATC, or a completely unexpectable traffic situation. This allowance isn’t even necessarily for your benefit; it makes your flight examiner’s life much easier. Without leeway to use some judgment on their own, they’d have to hand out far more pink slips and they’d have to spend more of their precious checkride slots giving rechecks. You should absolutely not rely on this allowance for your success. However, it should give a prepared pilot great peace of mind!)

On a checkride, you must be prepared to discuss every knowledge item on this list. You must be prepared to execute every maneuver to the standards specified. You’re the one flying the aircraft when you train. You have the power to know whether you’re meeting standards or not. You also have the power to study the knowledge areas until you’re confident in your ability to discuss them.

None of this should ever be a surprise to you.

I’ve encountered too many flight students who act like it’s their flight instructor’s job to spoon-feed them everything. They expect their CFI to hand them every nugget of information from every knowledge area, and expect that regurgitating this information to an examiner will be enough to pass their oral exam. They expect their CFI to tell them whether they’re meeting maneuver parameters.

This is not how to be a pilot.

Some professions allow room for error, and leaning on others if you’re weak. Aviation makes no such allowances. When you’re flying professionally, the success of your mission, and the safety of your passengers and/or cargo depend entirely on your ability to get the job done without outside help…or to make the good decision not to go in the first place. This will lead us to a tough question in a moment.

In the meantime though, if you’re concerned about failing checkrides, then make sure you download a free PDF of the PTS or ACS applicable to the rating you’re working on. Print it out and take notes all over it! You shouldn’t even consider showing up for a checkride unless your papers are covered in memory joggers and citations for regulations or manuals where you can read the answers to all the questions in source documents.

I took several checkrides from an outstanding DPE who expected me to show up with my marked-up PTS in hand every time. His oral exams took some pilots hours and hours to finish, because he expected examinees to show him the answer to every question in a source document. However, he loved it when my PTS had handwritten notes all over it because it showed that I’d put in effort to prepare, and the exam ended up going faster and smoother.

Your DPE may or may not allow you to use your annotated PTS/ACS as a note sheet during your checkride, but you’d be a fool not to show up with one in hand and ask permission to use it! If the examiner approves, you have the answers to all of their questions.

Even if you don’t get to use it, the examiner won’t be able to help but notice how much preparation you’ve put in before showing up that day. This will always work out in your favor.

Whether you try this or not, there is no excuse for going to a checkride without adequate preparation. You know what’s required of you. You know whether you’re prepared to meet those standards or not. Take ownership of your training and make the call yourself.

(Next pro tip: Don’t copy or even “borrow” someone else’s annotated PTC/ACS. Don’t show up with something that is typed-out. The notes on this document should be written by your own hand. Examiners give lots of checkrides. If they start seeing the same “borrowed” PTS/ATS documents show up, they’ll start giving you a very hard time about it.)

More Hard Questions

Seeing checkride failure questions posted (usually anonymously) online frustrates me because the direct answers are so obvious, and I think they’re a crutch for avoiding more important questions.

We already identified some of the better questions a pilot should be asking themselves and their mentors. However, I think some of you are trying to get at other things.

Since airline pilot hiring started booming in 2014, and resumed booming post-COVID, I’ve noticed significant pressure among young pilots to rush through their ratings and get their spot in line as soon as possible. I’m probably even guilty of contributing to that.

I worry that many of these young pilots view flight training and low-time pilot jobs less as valuable opportunities for learning and development, and more as useless obstacles that have to be skimmed over as quickly as possible.

This is a detrimental attitude.

When I see these pilots asking about checkride failures, I’m worried that some of them are saying:

“I’m frustrated that I wasn’t able to effectively min-run this training event and move on to the next one quickly enough. Does anyone else agree that this is unfair?”

Sometimes, these lazy checkride failure questions aren’t being asked in pursuit of feedback that should be obtained elsewhere anyway, they’re being asked to justify a bad attitude.

I don’t think this is anywhere near universal. I think most pilots are honestly trying hard to do the right thing. However, I’ve known a lot of pilots and a lot of students in my time, and I know that many of them have exactly this attitude.

This leads us to some more very important questions:

“Why are you pursuing aviation in the first place?”

Or

“What is it about aviation that you love so much you want to possibly devote the next few decades of your life to it?”

You don’t have to eat, sleep, and breathe aviation to have a good career as a pilot. However, if you don’t have at least some love for flying, this is not the career path for you!

The barriers to entry are just too high!

Flying is expensive, and employers require pilots to obtain a lot of hours to land a desirable job. Work days for pilots are long, and frequently uncomfortable. You’re expected to keep yourself educated and proficient in a wide variety of knowledge and practical areas.

If you’re only in this job for the money, or the image, or something else, you will not enjoy it. I know a lot of miserable pilots. They’ve wasted their working years doing something they don’t love for the wrong reasons, and many of them make pilots around them miserable too, whether they realize it or not.

If you want money, go get a degree in finance. Go learn to code. Go binge everything on BiggerPockets and start investing in real estate. So many other careers offer an easier path in life than aviation.

Perhaps the most important question that you should have asked instead is:

“What kind of person am I?”

Or, maybe:

“What kind of person do I want to be?”

Even if you care nothing for your passengers, cargo, or mission, your life depends on your ability to be a self-starter and always do what it takes to be good and safe at your job.

If you aren’t that kind of person, aviation could actually kill you.

If you’re the kind of person who always relies on others to spoon-feed you whatever it is you need to know or do, you will not enjoy aviation.

If you’re the kind of person who blames others instead of yourself, aviation is not for you.

If you’re the kind of person who thinks you deserve anything in this world you haven’t worked for, you should not pursue a career as a pilot.

I’m sorry. I know many of you didn’t want to hear this, but it doesn’t matter. Nothing you think, and nothing I say, will change the realities of this profession.

If you’re worried about repeated or egregious checkride failures, you need to spend some time considering whether you are or are willing to become the kind of person who puts forth the effort to gain the skills, knowledge, and ability to do the job.

You should not resent your training and the experience you get from low-time pilot jobs. This stuff is invaluable! I promise that you do not want to end up like pilots from many foreign countries who have so little meaningful aviation knowledge and experience that they crash jets and/or kill people for stupid mistakes.

You don’t want to be the Air France pilots who had a jet stalled for over 3 minutes as it plummeted thousands of feet into the ocean. You don’t want to be the Asiana pilots who crashed a $300M B777 flying a visual approach into KSFO.

Technology erodes every pilots’ skills…even mine. You need every minute of challenging flight experience you can get. Take advantage of opportunities to obtain it! That experience will be the foundation of your resistance against things like autopilots, autothrottles, and automation lulling you into incompetence.

Once you’ve asked yourself a good question about what kind of pilot you want to be, if you go to social media at all, a more effective question to ask might be something like:

“How have you developed yourself into the kind of person who is always prepared? I ask because I’m demonstrably not there yet and I’m looking for strategies to take ownership of my life and ensure I always meet the standards I set for myself.”

If necessary, you might consider reading a book called Extreme Ownership, by the incomparable Jocko Willink. If you want to succeed at anything in life, you’re far better off understanding and adopting at least a little of his philosophy than making useless social media posts that attempt to vindicate your maladaptive attitudes.

Take charge of every part of your human existence. In this context, take charge of your flying. Don’t depend on anyone else to spoon-feed you anything. You know exactly what’s expected of you for every rating you pursue. Work relentlessly until you know, deep in your soul, that you’ve achieved those standards. Then, when you go to your checkride, you’ll be able to push past nerves or mediocre examiners thanks to your wealth of preparation.

If you need help putting this mentality into action, look back at some of the better questions we’ve asked here. Find some real mentors who have the ability to help you develop yourself when needed. You will not find that mentorship by anonymously posting lazy questions on social media.

If you embrace a mentality of Extreme Ownership in your flying, checkride failures will not be something you ever need to fear. You’ll experience fewer of them in the first place, and you’ll be able to explain how you learn from them so effectively in job interviews that you’ll wow your future interviewers and actually increase your chances of getting hired.

Now, go study hard and fly safe. Earn your spot in a dream job. I look forward to seeing you on the line.