Delta Pilots – Market Based Cash Balance Plan

At Wiser Wealth Management, we frequently work with airline pilots, particularly Delta pilots, due to our location in metro Atlanta. Casey Smith, President of Wiser Wealth Management, spent over 10 years with Delta’s ASA system, which has helped us build an extensive network within the pilot community. Recently, we’ve received numerous inquiries about Delta’s new Market-Based Cash Balance Plan (MBCBP). While Delta’s RNI committee has done a solid job of distributing information, there is still a lot of confusion and unnecessary concern surrounding certain aspects of the program.

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Market-Based Cash Balance Plan Benefits

First of all, Delta pilots can contribute $22,500 to the Delta 401K plan. Starting in 2024, the company will begin to contribute 17%.  If you happen to make over $255,000 a year you’d have this excess of 17% that couldn’t go into the plan because you’d have hit the IRS maximum. Currently, the IRS maximum is $66,000 if you’re under 50 and $73,500 if you’re over the age of 50. It’s important to note that the maximum will most likely continue to increase each year.

What Delta is offering through the Union bargaining agreement, was the first of a kind for pilots, market based cash balance plan. This means that instead of coming back to you in additional pay, the 17% could go into this plan. It’s important to note that you won’t be able to manage the money, or select from investment options like you would inside a 401k. Instead that money has to be managed more like a pension fund. Pensions are typically made of 40% stock and 60% fixed income. The average cost of the target date fund is 0.14% per year, which is very low. However, not as low as the 401K plan, but much lower than if you took money over to your brokerage link and invested on your own.

Tax Advantages

The biggest advantage inside the market based cash benefit plan is tax related. If you’re at the 37% tax bracket range, any dollar that you can hide from your tax return is essentially saving you 37 cents on the dollar. So, if you elected to opt of the MBCBP (available to pilots hired before June 1-2023) and instead decided to invest that money yourself, you’d have to overcome potential 37% loss in tax, depending on your tax bracket. The second big advantage is that there’s no limit to how much you put into this plan. Another good news is that if Delta were to file bankruptcy the money is still yours, which wasn’t originally part of the plan.

Additional Options

Another important note about the MBCBP is that you could potentially roll it out. At age 59 and a half, you can even roll your 401K money, if you wanted to. If you did not like the allocation and needed to do something different with the money you could roll it to an IRA while you’re still working.

They also offer the option to convert it to an annuity. However, we would hardly ever recommend any pilot to do that. Unless it’s an extreme case, where you’re just really bad with money and you’ve managed to file multiple bankruptcies. With that, you’ve proven that you cannot manage money at any level, then maybe someone needs to hold your money for you and give it back little by little over your lifetime.