Every year about this time, the Legacy Continental Airline Pilots of United Airlines, approaching retirement, turn their attention to the General Agreement on Tariffs and Trade (GATT) rate…. Why?
To help them determine the lump sum value of their Continental Pilots Retirement Plan (CPRP) better known as the “A Fund.”
As the GATT rate goes, so goes their A Fund pension lump sum value.
How does the GATT rate affect your pension plan?
The CPRP pension plan's lump sum value is based on the single life annuity option payable at your normal retirement date. It is designed to be equivalent to the present value of the single life annuity benefit on the pilot’s retirement date.
When the actuaries calculate the pilot lump sum value they look at recent mortality tables and interest rates as part of their assumptions. Mortality tables change each January, yet remain constant throughout the year for all lump sum calculations. The GATT rate used to calculate the CPRP lump sum changes twice a year, in February and again in August. The interest rate is based on a corporate bond yield curve consisting of three segment rates ranging from 1-5 years, 6-20 years and 21-30 years. There is an inverse relationship between the segment rates and the lump sum amount. As interest rates rise, lump sum values fall while lower interest rates provide higher lump sum values.
Pilots retiring June 1st through November 30th can elect to have their lump sum benefit based on the rate from February of that year. Pilots retiring December 1st through May 31st can elect to have their lumps payout based on the rate from August of the prior year.
Pilots can also elect to defer their “A Fund” lump sum payout past their last day of employment if they believe interest rates may be lower in the future. Don’t risk a lot for a little.
Before making any financial decisions, it is always best to have a plan in place to ensure you are making the best decisions for your unique situation. At RAA, we have an expert understanding of the issues and decisions that will impact a United or Legacy Continental pilot’s retirement. Contact Michael Kane at (800) 321-9123 with any questions about your benefits.
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