Airline Pensions All But Gone? That’s a Good Thing

The tech bubble bursting and the reactions to 9/11 gave birth to a much better option.

Jason Depew

Thursday, March 10, 2022 at 12:19 PM ET

Verified

Years ago, airline pilots got a great deal on their retirement, but things have changed. [File Photo: Adobe Stock]

Key Takeaways:

Traditional pension plans, once generous, became vulnerable due to complex funding requirements, reliance on short-term market predictions by actuaries, and government regulations that penalized over-funding.
This "Catch 22" of underfunding hurting retirees and over-funding leading to IRS penalties made it difficult for companies to secure pension obligations.
Economic downturns, exemplified by the airline industry post-9/11, exposed these vulnerabilities, leading many companies to legally escape their pension commitments through bankruptcy.
As a result, most employers have transitioned to 401(k) plans, which are presented as a "far better" alternative, offering employees individual control over investments and protection from company financial woes.

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Many years ago, saving for retirement was simple. You started working for a company in your 20s, stayed there for 40 years, and then that company paid you a pension for the rest of your life.

Airline pilots used to get a sweet deal. Their pension was 60 percent of final average earnings (FAE). With annual pay above $600,000 per year (in today’s numbers), a 60 percent FAE pension meant retirees would collect the equivalent of $360,000…every year…for the rest of their lives. Wow.