What s Inside This PRAP Guide

Transcription

1 UAL MEC RETIREMENT & INSURANCE COMMITTEE What s Inside This PRAP Guide 1. Introducing the New PRAP INTRODUCING THE 2. Timing & Account Information 3. Important PRAP Communications Mailed to Your Home Address 4. Seamless Transition 5. About This PRAP Guide 6. a. PRAP Funds b. How Your Assets Will Transfer c. Investment Source Names are Changing d. Addition of C-Plan for All Pilots e. Roth 401(k) and Roth Conversions f. Other Items of Interest g. PRAP Website and Call Center Information 7. It s Your PRAP More Questions? New Plan Effective: June 2, 2014

2 Introducing the New PRAP The UAL MEC Retirement and Insurance Committee is pleased to announce that the Pilot Retirement Account Plan (PRAP) will go live on Monday, June 2, The PRAP will be formed through the merger of the Continental Pilots 401(k) Plan, the Continental Pilots Defined Contribution Plan (B-Plan), and the United Airlines Pilot Directed Account Plan (PDAP). The consolidated PRAP will contain all the plan provisions in UPA Section 22-A. The PRAP offers the following improvements over the current pilot retirement plans: Lower fees Additional investment options: International and Bond index funds Real Asset fund Global Equity fund The ability to make Roth 401(k) contributions and to convert your current account to a Roth account Easier distribution process for those retired or age 59½ and older Guided Choice, a retirement readiness calculator UAL MEC 2

3 Timing & Account Information At 4 p.m. EDT on May 30, 2014, the process for converting the current retirement plans to the PRAP will begin. Pilots will not be able to access their retirement accounts during the conversion period, which will be processed over the weekend (May 30 through June 1). The process should be complete when U.S. stock markets open on Monday, June 2, and then you will have access to your new PRAP. PRCA brokerage accounts will be accessible during the conversion process. Once the PRAP is up and running, pilots will be able to access their account using the same log-in ID and password they use today. The PRAP will have its own website, You may also call the PRAP Service Center, Monday through Friday, 6 a.m. to 10 p.m. CT, at PRAP ( ). The current PDAP site will redirect you to the PRAP site, but we recommend pilots bookmark the new PRAP site. UAL MEC 3

4 Important PRAP Communications Mailed to Your Home Address UAL MEC Retirement & Insurance Committee Introducing Your PRAP Charles Schwab & Co., as the PRAP record keeper, has worked closely with the R&I Committee and United to develop and provide all pilots with a comprehensive set of important documents regarding the transition to PRAP. You will receive these at your address of record, and we recommend you spend some time reviewing this information. These important PRAP documents are also posted at UAL MEC 4

5 Seamless Transition The conversion to the PRAP will be seamless, not requiring any pilot action. Your account balances, investments, and investment elections will automatically transfer to Differences between a PPO, EPO, HMO and HDHP the PRAP; however, some investments and investment elections will change, depending on your current designations. You should carefully read the new plan fund descriptions and note especially the mapping matrix to ensure that your PRAP investments will meet your personal investment goals and reflect your risk tolerance. UAL MEC 5

6 About This PRAP Guide This guide provides a review of seven important topics with the transition to the PRAP. It is designed as a supplement to the official PRAP plan communications, and highlights some of the changes. We recommend you read this entire guide as well as the PRAP information packet sent by Charles Schwab. 1. PRAP Funds: The three tiers you have today (Target-Date Funds, Core Funds, and Brokerage) will continue. The asset allocation of the Target-Date Funds have changed from your prior plan. The PRAP Target-Date Funds will have somewhat less equity and equity-like investments compared to most of the current L-CAL Target-Date Funds, and more equity and equity-like investments compared to most L-UAL Target-Date Funds (AutoPDAP). New funds have been added to the Core Funds lineup, including new Index Funds and a Real Asset Fund. The Money Market Fund has been removed from the menu. 2. How Your Assets are Transferring: Assets will transfer, with like funds transferring to like funds (such as PDAP Equity Value Fund to Large-Cap Value Equity Fund in the PRAP). Please note that Money Market Fund balances will transfer to the Stable-Value Fund, and PDAP S&P 500 Index Fund balances will be transferred to the Total US Equity Index Fund. If you have selected one or more Target-Date Funds as an investment, your balances in the current Target- Date Funds will transfer to the new PRAP Target-Date Fund based on your age. Review the charts in this guide that illustrate how funds will be mapped from the prior plan fund to the new PRAP funds, including information on how your Target-Date Fund balances will transfer. 3. Investment Source Names are Changing: All account source names are changing. Some of the account sources are being combined and there are new account sources. UAL MEC 6

7 About This PRAP Guide Continued For instance, pretax 401(k) contributions go into the source named Pre-Tax in the PDAP and Before Tax Contribution in the L-CAL retirement plans. In the PRAP, this source will be called Pre-Tax Elective Deferrals. 7. PRAP Website and Call Center Information: Pilots can download the Schwab mobile application. 4. Employer 16% Contribution Split, with 9% Going to B-Plan Source and 7% to C-Plan Source: The PRAP utilizes a B-Plan and C-Plan account source structure per UPA S-22-A-h-1. The B-Plan and C-Plan are not new retirement plans but contribution source accounts within the PRAP. 5. Roth 401(k) and Roth Conversion Information: The PRAP will allow Roth 401(k) contributions and conversions. 6. Other Items of Interest: Easier withdrawals, two loans, paycheck changes, automatic savings increases, lower fees, and checking your beneficiaries are all availible. UAL MEC 7

8 a. PRAP Funds The PRAP Investment Committee has selected a three-tier approach to the funds in the PRAP, consisting of Target-Date Funds, Core Funds, and PCRA. I. Target-Date Funds If you lack the confidence and/or time to manage your PRAP investments, then a Target-Date Fund may be right for you. The PRAP Target-Date Funds were designed specifically for United pilots by AllianceBernstein and Hewitt EnnisKnupp. These asset-allocation funds are a diversified investment that contain a variety of equity, bond, and diversifying asset classes that becomes more conservative as pilots age. The PRAP Target-Date Funds are designed with an expected retirement age of 65. The date in the fund is the expected year of retirement when investors in the fund would begin to gradually withdraw their assets. There will be 13 different Target-Date Funds in the PRAP; see the following charts to get a better understanding of the asset allocation in the Target-Date Funds. New PRAP Target-Date Funds (Year) Expense Ratio (Percent) % % % % % % % % % % % % Target Date Retirement Fund.41% UAL MEC 8

9 a. PRAP Funds (Continued) Investments Become More Conservative Over Time Examples of Asset Allocations Based on Age* *This chart does not represent any particular Target-Date Fund. It is meant to show how the investment mix of any of the Target-Date Funds changes over a lifetime. UAL MEC 9

10 a. PRAP Funds (Continued) The graph below shows the PRAP Target-Date Glidepath (in green) compared to the current L-UAL and L-CAL Target-Date Funds. It shows that many of the L-CAL Target-Date Funds would have had more equity investments, and many of the L-UAL Target- Date Funds would have had fewer equity investments, compared to the new PRAP Target-Date Funds. GROWTH-SEEKING ASSETS PRAP Continental UA AGE UAL MEC 10

11 a. PRAP Funds (Continued) II. Core Funds If you have the time and knowledge to manage your investments, then building a portfolio from the Core Funds might be the right strategy for you. To the right is a table listing the Core Funds in the PRAP and their expense ratios. As you can see, the Money Market Fund has been eliminated. Any assets in the Money Market Fund will be transferred to the Stable-Value Fund. Also, we ve added a Real Asset Fund. The Real Asset fund is managed by PIMCO and consists of Commodities, Real Estate, and TIPS (Treasury Inflation Protections Securities). The Total US Equity Index Fund is now a total stock market index; this is a change for the L-UAL pilots whose current index fund is an S&P 500 index. The PRAP also adds two new index funds, the International Equity Fund Index and the Total Bond Index. III. Personal Choice Retirement Account (PCRA) or Brokerage Account If you are a knowledgeable, experienced investor with the time to manage your investments, then the Asset Class New PRAP Investment Options Expense Ratio Large Company Large Cap Value Equity Fund.43% Large Cap Growth Equity Fund.50% Small/Mid Company Small Cap Equity Fund.76% International/Global International Equity Fund.74% Global Equity Fund.70% Bonds Diversified Bond Fund.34% Capital Preservation Stable Value Fund.32% Real Assets Real Asset Fund.65% Index Funds Total US Equity Index.018% International Equity Index.12% Total Bond Index.07% PCRA might be the right option for you. The PCRA offers a substantial number of investments to choose from. There will be no fee to have a PCRA, and the L-UAL minimum core reserve has been eliminated, so all of your assets can be in the PCRA if you are so inclined. The PCRA will not allow purchases of UAL stock, overthe-counter stocks (NASDAQ securities allowed), and foreign securities (ADRs will still be allowed). UAL MEC 11

12 b. How Your Assets Will Transfer Your current Target-Date Fund(s) will be transferred into one PRAP Target-Date Fund. Your one PRAP Target- Date Fund is determined by your year of birth, reference the table to the right. This transfer to the Target-Date Fund will take place regardless of which Target-Date Fund(s) you are currently invested in. Your PRAP Target-Date fund will result in a change to the asset allocation in your current Target- Date Fund(s). Refer to the visuals on pages 9 and 10 of this document and PRAP Target-Date Fund profiles for more detailed information. After the PRAP goes live, you will have the opportunity to change investments should you so desire. Date of Birth PRAP Target-Date Funds Expected Retirement Date Range 1988 or after or after or before Target-Date Retirement Fund 1997 or before UAL MEC 12

13 b. How Your Assets Will Transfer (Continued) Core Funds will transfer according to the table to the right. Asset Class Current Investment Option New PRAP Investment Option There will be no asset transfers within your PCRA or Brokerage account. Large Company PDAP Value Equity Fund* Large Cap Value Portfolio** PDAP Growth Equity Fund* Large Cap Value Equity Fund Large Cap Growth Equity Fund Large Cap Growth Portfolio** Small/Mid Company PDAP Small Cap Equity* Small Cap Equity Fund Small Cap Equity Portfolio** International/Global PDAP International Equity Fund* International Equity Portfolio** International Equity Fund Global Equity Portfolio** Global Equity Fund Bonds PDAP Diversified Bond Fund* Diversified Bond Fund Fixed Income Portfolio** Capital Preservation PDAP Stable Value Fund* Stable Value Fund Stable Value Portfolio** Vanguard Prime Money Market Instl* Money Market Portfolio** Real Assets NEW Real Asset Fund Index Funds PDAP S&P 500 Index* Equity Index Portfolio** NEW NEW Total US Equity Index International Equity Index Total Bond Index *L-UAL Fund **L-CAL Fund UAL MEC 13

14 c. Investment Source Names are Changing Details of how PRAP Investment Source names are changing are best reviewed in the source-mapping documents provided by Schwab. The source-naming changes depend on your reference as a L-UAL or L-CAL pilot or whether you have accounts in both L-CAL and L-UAL plans. Both the CAL B-Plan and the UAL Employer B-Plan (for pilots hired prior to 9/21/1989) source balances are Money Purchase Plan (MPP) contributions, which have spousal distribution rights associated with these balances. To streamline the distribution process in the PRAP, all prior MPP balances will be segregated in a separate new source, which carries these rights. This source will be referred to as Employer MPP. No future 16% employer contributions will be contributed to the Employer MPP account. The Employer MPP source will comprise the following: a. All CAL-B Plan prior balances will be moved to the new Employer MPP source b. All L-UAL pilots hired before 9/21/1989 will have their prior Employer B account moved to the new Employer MPP source All other PRAP sources are not classified as Employer MPP and will be available for distribution under the streamlined withdrawal process. UAL MEC 14

15 d. Addition of C-Plan for All Pilots Effective with PRAP implementation, all pilots will receive a 16% company contribution, established in S-22-A-1-a of the UPA, consisting of a 9% B-Plan source and a 7% C-Plan source. The PRAP will maintain the distinction of B and C Plan sources in recognition of the sacrifices the pilots have made in our retirement plans over our collective histories. The C-Plan was established in 2006 as a partial monetary recognition of the A-Plan termination for United pilots. The C Plan is new for CAL pilots who also lost their A-Plan through a plan freeze in Please reference the MEC Update of April 30, 2014, discussing the recent history of our retirement plans and the addition of a C-Plan source for all pilots. UAL MEC 15

16 e. Roth 401(k) and Roth Conversions All pilots will have the ability to contribute to a Roth 401(k) in the PRAP. Roth 401(k) contributions are after-tax contributions and may be withdrawn tax-free (if certain requirements are met) at retirement. Pilots who wish to elect Roth 401(k) contributions must make a Roth 401(k) election. The combined limit for pretax and/or Roth 401(k) contributions is $17,500 in If you will be 50 or older in 2014, you also can make a $5,500 catch-up contribution; catch-up contributions may be pretax or Roth depending on your employee elective contributions. Pilots will also have the ability to convert any or all of their PRAP balances into Roth conversion accounts. As always, advice from an unbiased professional is highly recommended prior to making changes that could result in a substantial taxable event. To make a Roth conversion, please call the PRAP Service Center, see page 18 of this guide for the Schwab contact information. If you elect a Roth 401(k) election for the first time, be sure to make an investment election for these contributions. If you do not select an investment option for the Roth 401(k) (or any other contribution source), the PRAP will default the investment of your contributions into an age appropriate Target-Date Fund, see page 12 for the fund that would apply to you. UAL MEC 16

17 f. Other Items of Interest By segregating all Employer MPP balances (all L-CAL B-Plan balances and L-UAL pilots hired before 9/21/1989 Employer B accounts), the distribution process will be simplified for all other balances in the PRAP. Pilots can have two loans in the PRAP. The amount of both loans must be the lesser of $50,000 or half the PRAP balance. Pilots can select automatic savings increases, so that every year your pretax or Roth 401(k) contributions increase at a rate you choose. Pilots will pay $26 per year in administrative fees, and will also see lower fees in many of their investment options. As an example, the Total US Equity Index has an expense ratio of.018% versus.04% for the current PDAP S&P 500 Index and the.05% expense ratio for the L-CAL Equity Index Portfolio. Pilots who had more than one retirement plan with beneficiaries that didn t match on these plans will have to reelect their beneficiaries for the PRAP. Pilots can have a total of three brokerage accounts. UAL MEC 17

18 g. PRAP Website and Call Center Information The PRAP website is You can also call the PRAP Service Center at PRAP ( ) from 6:00 a.m. to 10:00 p.m. CT, Monday through Friday. You can download the Schwab mobile app to get your PRAP balance. UAL MEC 18

19 It s Your PRAP More Questions? UAL MEC Retirement & Insurance Committee Welcome to Your PRAP The PRAP improvements were negotiated to help you reach your retirement goals. As we transition to the PRAP, we think this is a great time to reevaluate your retirement readiness. Happy investing! If you have any questions regarding the PRAP or any retirement and insurance issue, please contact the UAL MEC R&I Committee at UALMECRI@alpa.org. UAL MEC 19