UPA 2023: What Does It Mean For You and Your Retirement?
An Overview Of The Important Changes To Your United Benefits
As we enter the new year, United Airlines pilots may wonder about the impact of the new UPA 2023 contract on their retirement plans with the newly adjusted contribution limits. The R&G Wealth Team has diligently monitored the contract’s progress, providing insights into its various aspects.
Important Changes
While this article refrains from commenting on certain contract elements, such as work rules, or evaluating the contract’s overall value, it does shed light on significant financial changes affecting pilots. The focus here is on detailing the financial planning implications of the contract, including how pilots can leverage them in conjunction with the 2024 IRS contribution PRAP limits. We will cover these topics below.
Section 22 – Retirement
The most substantial changes in the contract relate to retirement and carry significant financial planning implications:
Non-Elective Contributions (NECs)
NECs are set to increase to 17% in 2024 and 18% in 2026, accelerating 401(k) accumulation. This will allow company contributions to accumulate more quickly in 401(k)s and potentially reduce the need for additional pilot deferrals. A thorough planning is necessary to induce or prevent a “spillover” event once IRS contribution limits are exceeded depending on each pilot’s unique situation.
Profit Sharing Contributions
Similar to NECs, profit sharing contributions can expedite 401(k) accumulation, leading to earlier “spillover” events in the calendar year.
In-Service Distributions
In-service distributions are available from age 59 ½, offering flexibility for personal and United in-service distributions.
Market-Based Cash Balance Plan (MBCBP)
A new pension option, providing pilots with an additional pension option without carrying the risk of underfunded pension liabilities. While implementation details are pending final approval, the plan is anticipated to commence in 2025. It is expected that it will look similar to the MBCBP implemented by Delta and American.
HRA/RHA Funding Options
Pilots can choose to fund HRA/RHA separately or in combination with MBCBP, offering flexibility in managing spillover funds.
Section 24 – Insurance
Following retirement, changes to insurance are paramount in financial planning:
HRA/RHA Spillover
Capped at $10,000 until MBCBP implementation for those exceeding the 401a17 limit ($345,000 maximum compensation limit in 2024). Excess funds will be paid out in cash, subject to taxes and union dues until the MBCBP plan is established.
Long-Term Disability (LTD)
Increased maximum benefit to $13,521.40 from $11,000 and subject to pay scale increases for a greater benefit rather than being capped to a maximum amount. This also reduced the elimination period to 60 days and has extended the sick bank to help bridge the gap and cover the reduced waiting period. Finally, with the inception of the MBCBP, pilots on LTD will now have company NECs contributed to this plan to the tune of 34% of the maximum benefit amount.
Company-Paid Life Insurance
Improved benefits with a new formula modifier doubling, along with the increase in pay scales, significantly enhancing a pilot’s life insurance coverage.
Section 3 – Compensation
A notable increase in pay scales, profit-sharing formula improvements, retirement contributions, and Ratification Bonus payments contribute to a substantial rise in annual income. However, pilots may face higher tax brackets, necessitating careful tax planning. In light of the upcoming SECURE Act 2.0, which will impose challenges for high-income earners to allocate additional pre-tax funds into qualified accounts by mandating that catch-up contributions in 2026 must be directed towards Roth accounts exclusively, it becomes crucial to explore strategies for consistently lowering your annual tax obligations.
Section 7 – Furlough
The minimum furlough notice extended from 30 to 90 days, providing pilots with more time for contingency planning in case of industry or company hardship.
Section 11 – Vacation
Changes in vacation policies now allow non-elective contributions to pilot 401(k)s whether vacation is used or forfeited, relieving pressure on pilots to use all vacation days for fear of missing out on the company’s contributions into their retirement plan on forfeited vacation days.
Section 12 – Leaves of Absence
The addition of eight weeks of paid maternity and fourteen days of parental leave enhances financial flexibility for pilots planning or expanding their families.
Conclusion
In conclusion, the UPA 2023 agreement brings substantial improvements in pay, work-life quality, work rules, sick leave, vacation, and retirement benefits for United’s pilots. The R&G Wealth Team is ready to guide pilots through these considerations and more.
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