Aviation Continuation Pay (ACP - The Bonus)

[BitteEinBit]

We always hear about take rates (I.e Air Force meeting their goal) but we never hear about numbers of eligibles who separate. I'm willing to bet the numbers who separate won't change much even without the bonus. Like RP said, most of the people who take the bonus were going to stay anyway.

The only thing not having a bonus will change is in the way AFPC has to manage the rated force...they don't have the leverage anymore and they may actually have to plan ahead. My prediction: They will fail miserably.

[Striper_WSO]

Anyone else get hit on taxes because the ACP put them over the limit for ROTH IRA contributions? I am not tax savvy so wondering if anyone has a good idea for avoiding the penalty.

Also this from this morning's WSJ. A big STS on the whole article.

Going through the back door can pay off for high-income retirement savers.

We're talking about the backdoor route into popular Roth individual retirement accounts, which offer tax-free income in later life.

The front door into Roths is shut for many investors. Married couples earning $191,000 or more and singles earning $129,000 or more in 2014 are barred from contributing directly to Roth IRAs.

But there's a simple detour that works for many of them. They can put money into a traditional IRA—and then roll that into a Roth IRA, getting all the benefits.

More than 40% of the Silicon Valley executives working with adviser Bijan Golkar of FPC Investment Advisory Inc. in Petaluma, Calif., do this year after year, he says. Roth IRAs are "a great tool" for these clients, who are likely to be in high tax brackets even in retirement because of hefty 401(k) accounts, he says.

With a Roth IRA, contributions are made with after-tax dollars, but earnings compound without tax and can be withdrawn tax-free in retirement. With a traditional IRA, in contrast, qualifying savers get an upfront tax deduction but owe tax when money is withdrawn.

Most high earners who can't contribute directly to a Roth also can't make a deductible IRA contribution. For instance, there's no deduction if you are covered by a retirement plan at work and have 2014 income of at least $116,000 on a joint return or $70,000 as a single filer. So for those investors, a traditional IRA is ho-hum.

But high earners are still allowed to contribute to a traditional IRA, and that's the first step in the indirect route to a Roth IRA. The next step, which might occur as soon as a few days later: Convert that traditional IRA to a Roth, which is a move available to all.

There's one big caveat: This strategy works best for people who don't already have money in traditional IRAs. That's because in conversions, earnings and previously untaxed contributions in traditional IRAs are taxed—and that tax is figured based on allyour traditional IRAs, even ones you aren't converting.

For an investor who doesn't already hold traditional IRAs, creating one and then quickly converting it into a Roth IRA will cost little or nothing in tax, because after a short holding period there's likely to be little or no appreciation in the account.

But if you already have money in traditional IRAs, particularly ones for which you took a deduction, you could face a far higher tax bill on the conversion.

"That is definitely a trap that people fall into," says Jeffrey Levine, a CPA with Ed Slott & Co. in Rockville Centre, N.Y.

One possible workaround, he says, is to roll older traditional IRAs into your 401(k) plan, if the plan allows. Then converting a new IRA into a Roth will cost you taxes on only the earnings, if any, of the new account.

[epsilon]

Anyone else get hit on taxes because the ACP put them over the limit for ROTH IRA contributions? I am not tax savvy so wondering if anyone has a good idea for avoiding the penalty.

Yeah man I got hit as well. I was a couple grand above the limit for contributing to a Roth for myself and my wife. I had already put 5k in a Roth for each of us in 2013, so I had to call USAA and have those contributions converted to a traditional IRA. Not a huge deal I guess since it is only one year---but with that 50% ACP up front my agi was around 192k for 2013! I was also living overseas and am not 100% sure how cola, etc affects AGI.

[Lord Ratner]

I was also living overseas and am not 100% sure how cola, etc affects AGI.

It's an allowance, so it should have no effect.

[Majestik Møøse]

I'm willing to bet the numbers who separate won't change much even without the bonus. Like RP said, most of the people who take the bonus were going to stay anyway.

I don't know. Those sitting on the fence, trying to decide if they want to stick it out and continue doing all they can to fix their piece of the sinking ship, now will apply a ~$90-125K hit to the "continue to serve" option. What once was not entirely about money now is, and the airline copilot pay gap is comparatively smaller.

I bet AFPC feels like they just used the nuke option. What they don't see is that they used it on themselves.

Edited March 9, 2014 by Majestik Møøse

[zmoney]

I don't know. To those sitting on the fence, trying to decide if they want to stick it out and continue doing all they can to fix their piece of the sinking ship, now will apply a ~$90-125K hit to the "continue to serve" option.

Shack.

[HeloDude]

I don't know. To those sitting on the fence, trying to decide if they want to stick it out and continue doing all they can to fix their piece of the sinking ship, now will apply a ~$90-125K hit to the "continue to serve" option. What once was not entirely about money now is, and the airline copilot pay gap is comparatively smaller.

I bet AFPC feels like they just used the nuke option. What they don't see is that they used it on themselves.

Agree to a certain extent. Here's why: Big Blue (which gives the final nod for the bonus, not AFPC in a bubble) might be willing to roll the dice and not offer a bonus this year to certain AFSC's to see how retention fares compared to years past...Big Blue can always decide next year to reverse course and give the bonus out again, and all they lost were the guys who separated this year, which they lose an X percent each year anyway with the bonus (besides, some guys have longer commitments due to GI Bill transfer, TA, new PCS, etc). It all comes down to the bottom line for the folks in DC, hence why the majority of Navs/CSO 's no longer receive a bonus, and likewise, the 11F's got a much better one last year. Is getting rid of the bonus worth losing, say, 3% more than usual? Perhaps. Is it worth losing 15%...probably not.

I can argue positions for and against it, but nobody knows exactly what will happen until they actually suspend it. This all being said, I have a feeling the bonus won't change much from last year, and that's what I'm personally hoping to see.

[stract]

this year's bonus is called VSP.

[ThreeHoler]

I heard 11F will get 50K/yr tax free for 10 years.

11M will have to pay 25K a year to get an ADSC.

[LockheedFix]

Last year's announcement didn't come out til late June IIRC. I'd be shocked if it came out any earlier than that this year with all the manning shenanigans going on right now.

[Homestar]

The irony is that the Air Force will be paying some pilots to get out while simultaneously paying others to stay in. I personally wouldn't be surprised to see the bonus suspended for 11Ms.

[Bender]

The irony is that the Air Force will be paying some pilots to get out while simultaneously paying others to stay in. I personally wouldn't be surprised to see the bonus suspended for 11Ms.

If the Air Force uses TERA/VSP/RIF to reduce 11M numbers to align with future requirements, without excess...for this to be true, it will be necessary to account for corresponding drops in retention if the bonus is not offered?

It was stated that future requirements were not tied to manning documents, but I'm not aware of what it was based on...is the Air Force confident enough that the 11M (or other) requirements were calculated perfectly enough to forgo an established retention tool that can provide a buffering effect on relative significant changes.

If 1 pilot in the 2003 year group doesn't stay beyond they're "calculations", what impact does that have on the minimum run requirements?

Once every year group gets "trimmed", they can't be immediately replaced, rather they must be filled from following year groups through retention. There isn't an obvious reason to believe this retention issue will be better than it has been in the past.

Why would the Air Force not offer ACP to 11M's (or others) again? Being an idiot is the easy answer, but can anyone with logic make one?

Bendy

[ComingLeft]

Bendy,

People showed their cards. If we assume economic rationality in aggregate, someone who will not leave for money will arguably stay for nothing. Who you really want to offer a bonus to are denied VSP pilots. Delaying the ACP for two years strings the retained pilots along for the "next year" promise. Look at what happened delaying it a few months.

Posted from the NEW Baseops.net App!

[Bender]

Thanks for the input; I'm not sure it's all quite as simple as that though.

One's desire to stay throughout an initial 10 year contract does not equate to the same desire to stay beyond those 10. As you a aware, the second 10 are just not the same: for the individual or the Air Force. I'm certainly not saying it isn't viewed that way by some, I am saying it may be a mistake to think someone that doesn't want to bail at 4-9 years with a ~1-yr VSP payout is willing to stay for another 2, 3, 10 years with the additional responsibility, additional/undesirable commitments, not to mention any additional personal considerations without additional incentive, particularly considering, in aggregate, they didn't before (thus ACP in the first place).

I also find it difficult to get the idea that someone looking to VSP would be persuaded to stay even remotely by then minimal compensation of ACP. I would think that any individual that applied for and was denied VSP should be considered attrition after their ADSC. Very few people applied for separation purely based on the financial incentive...do you disagree? Are their people that want out only because they'll get paid and wouldn't walk if given the chance without it (those with ADSC)?

As far as showing cards...this should make man power planning easier. Any denied VSP application should support the need for ACP...any person left should be required for "future requirements", and thus needed..unless this additional attrition is accounted for in the "future requirements". I find this concept unlikely, but certainly not impossible.

Anyway, there is a need for manpower management to be comprehensive...and this is perhaps too much to ask, at least for now. The are other larger issues convoluting it right now.

Bendy

[BitteEinBit]

If the Air Force uses TERA/VSP/RIF to reduce 11M numbers to align with future requirements, without excess...for this to be true, it will be necessary to account for corresponding drops in retention if the bonus is not offered?

It was stated that future requirements were not tied to manning documents, but I'm not aware of what it was based on...is the Air Force confident enough that the 11M (or other) requirements were calculated perfectly enough to forgo an established retention tool that can provide a buffering effect on relative significant changes.

Bendy

I'm confident enough to say that rated manning calculations were based on absolutely nothing. The Air Force just announced the force shaping of 25K people, implemented the process before ever deciding who they were going to cut, and then regrouped to decide who they were going to cut. Bassackwards is what those calculations are based on. It is safe to assume that the Air Force hasn't considered future planning, future manning or future anything with the rated force. They'll just wing it, recall if necessary, and throw money at the problem and as long as the beans look good (green) everything is ok. It worked before...it will work again. Ask Chang...he'll tell you.

Edited April 13, 2014 by BitteEinBit

[Vprdrvr69]

Ask Chang...he'll tell you.

Haha, where is that dipshit anyhow? Haven't heard his take on how awesome this FM program is going. I'm guessing he's deeply involved with it, hence the reason it is going so well!

[pcola]

My $ is on the same ACP as last year. Remember, it may look like a retention tool, but is more accurately described as a planning tool. They'll never get pilots to accept ADSCs for nothing, and it's impossible for these clowns to manage the force with 100% free agents beyond the 11-12 year point. They need the stability the ADSCs provide in the FM process. It's not about getting the appropriate number of pilots to stay as much as it's about having the advantage of planning for the future with the ADSC tool. IMHO...

Posted from the NEW Baseops.net App!

[Learjetter]

Which is why UPT/UNT ADSC should be 6 yrs. No AFSC for PCS, or school. And no stovepiping as policy.

And no ACP bonus, for anyone.

3 yr ADSC for O-4 pin-on.

Folks who'll stay, will. Those who won't may change their minds. In all cases, commanders will be motivated to entice their HPOs with "desirable*" next assignments.

*to the individual.

[Smokin]

Every time I even hear HPO mentioned, it makes me want to go to the airlines. HPOs are not the guys you need to entice to stay in. People who actually want to become GOs are generally going to stay in because that is who they are. The people you need to convince are all the guys who want to top out at O-5, maybe O-6 if the job was right, but see the lifestyle of their commanders and DOs and don't think it sounds like something they want to be a part of. Going to wing stand up to explain to the wing commander as to why a four ship landed 20 minutes late? Getting an angry phone call from the OG because Lt X didn't properly fill out an eSSS before sending an unnecessary memo to the group? Having to tell your squadron that they are going to miss Christmas and be "deployed" for six months to a base in Korea where a third of them have already spent 12+ months because some four star wants another squadron in his command? No thanks. Fix this type of BS and the AF won't need a pilot bonus; they'll have to kick guys out because too many want to stay in.

Last years change was a significant step in the right direction, but I think 2003 year group retention (or lack thereof) is going to force them to up the ante. Problem is, that would require explaining to Congress why guys who spent years getting to their dream job won't take a quarter of a million dollars to stay in that job.

[Karl Hungus]

The service has also asked the Defense Department to extend the Aviator Retention Pay program to traditional reservists, so as pilots leave active duty they can be eligible for the bonus if they enter the Guard or Reserve. Last year, the service changed the program to offer eligible fighter pilots a $225,000 bonus in exchange for a nine-year commitment.

Interesting.

http://www.airforcetimes.com/article/20140429/NEWS05/304290065/Leaders-encourage-active-duty-airmen-go-reserves

[LockheedFix]

I can't help but wonder if the fact that no one has bothered to post anything in this thread for over a month at the time of year when this thread is usually the most popular thread on BODN doesn't bode well for USAF pilot retention.

But seriously, has anybody heard anything? I saw a post on JQP about retention pay for missileers, so it's got to be coming soon, right?

[Homestar]

A little bird from AFPC mentioned the other day that he expects the release soon....as in a few weeks. We'll see. Expect the same program as last year.

[Homestar]

How long has the program been $25,000/year? If the dollar amount had kept up with inflation, assuming the $25k/year started in 1997 (just a guess), the bonus would need to be over $36k/year to have kept up with inflation.

In other words, it's not really "big money" anyway. I also enjoy my job, but if the price of freedom-to-choose is a measly $25k/year then I'm happy to pay that cost by not signing the bonus.

[HeloDude]

I'm curious if the those AFSC's that have been entirely red through this whole force shaping debacle will be offered more than just the standard 5-year bonus (similar to the fighter bonus we saw last year). Probably wishful thinking on my part...

[guineapigfury]

I'm curious if the those AFSC's that have been entirely red through this whole force shaping debacle will be offered more than just the standard 5-year bonus (similar to the fighter bonus we saw last year). Probably wishful thinking on my part...

That would be interesting. I'm stuck in RPAs and leaning very strongly toward getting out. Not sure how much it would take to change my mind.