Important Benefits Issues to Consider when Facing a Furlough
By John Perkinson, Senior Staff Writer
Nearly empty aircraft and numerous canceled flights became North America’s new airline industry norm immediately after the World Health Organization declared the global COVID-19 outbreak a pandemic on March 11. Fortunately, demand has returned but the path to a full recovery for the U.S. and Canadian aviation industries continues to be slow.
As a result, many airlines have been advising their employees of impending furloughs, including more than 11,000 ALPA members to date. While the Association is taking measures to protect member jobs through contract negotiating and lobbying efforts on Capitol and Parliament Hills, and by providing information about career opportunities, financial guidance, and available counseling for affected pilots, it’s important that ALPA members actively prepare for what’s coming.
“ALPA offers a broad range of educational materials and other resources, including retirement and insurance benefits, to help pilots navigate this kind of economic downturn,” says Capt. Ken Binder (FedEx Express), the Association’s Retirement & Insurance (R&I) Committee chair. “Tools like the union’s furlough and retirement and insurance resources webpages outline many of the considerations you need to make and the organizations that can assist you if you’re facing a furlough or other kind of displacement.”
The F word
A furlough is a temporary, unpaid leave that, in addition to the loss of salary, affects your health care, life insurance, and retirement benefits. The Worker Adjustment and Retraining Notification Act in the United States requires that employers give their workers 60 calendar days’ notification. The Canada Labour Code’s conditions for notice of a temporary layoff are a little less clear. For example, where an employee is terminated at the end of a temporary layoff, he or she is entitled to two weeks’ notice prior to the end of the layoff period or, in lieu of written notice, two weeks’ wages at the regular rate. However, the law can be superseded by the terms of a collective bargaining agreement under certain circumstances.
The bottom line is that if you ignore this change in job status, you run the risk of losing much of the wealth you’ve accumulated while working for your carrier. “Understanding what to expect and making sensible and timely decisions can help you retain much of what is rightfully yours,” says Binder.
Filing for unemployment
Filing for unemployment is an important consideration and a logical first step in response to this kind of work displacement. Unemployment insurance is a joint state-federal program that provides cash benefits to eligible, displaced workers. The amount of unemployment benefits varies by state, and each operates a separate agency that follows guidelines established by federal law. To learn more about specific state benefits, visit benefits.gov.
Unemployment claims are typically filed with the state where you work or, for airline pilots, the state where you’re based. If your local council is assigned to a geographic region, the state unemployment insurance office where you live can provide information about how to proceed with a claim.
In response to COVID-19, the Coronavirus Aid, Relief, and Economic Security (CARES) Act increased weekly benefits by $600 through July 31. While efforts are under way in Congress to extend this benefit (see “One Voice,” page 3), an executive memorandum issued on August 8 provides an extra $400 benefit at the discretion of each state.
Canada offers Employment Insurance (EI), and benefits are calculated at 55 percent of the maximum insurable earnings ($54,200). The greatest benefit an employee can receive is $573 per week (federal). Employees must pay into EI to draw a benefit. For more information, visit the government's benefits webpage.
Unlike in the United States, where you choose to file your claim is of little consequence in Canada. If you’re unemployed because of COVID-19, the Canada Emergency Response Benefit may provide some additional temporary income relief. The Canada Emergency Wage Subsidy was enacted earlier this year to provide eligible employers 10 percent of the remuneration paid to workers from March 18 to June 19, up to a maximum of $1,375 per employee.
The exorbitant cost of health care in the United States makes having some form of medical coverage imperative, and pilots facing furloughs have several options. In many cases, the collective bargaining agreement sheds light on how health care will be handled in the event of a furlough or other displacement. At larger airlines, ALPA members may have continued, subsidized coverage for some period, so check your labor contract to see if there’s an applicable provision.
You can also continue health-care coverage for up to 18 months from the date of your furlough by purchasing COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage. However, COBRA comes at a significant cost. You’re responsible for both your portion and the company’s share of the premiums plus an administrative fee, totaling up to 102 percent of the cost of coverage for active pilots.
COBRA coverage includes your medical plan, dental plan, vision plan (if you have one), and any health-care flexible spending account plans you register for. In practice, your airline notifies your plan administrator of your loss of coverage within 30 days. The administrator must then advise you within 14 days of your right to continue your medical coverage. COBRA coverage may be terminated if your company permanently ceases operation.
If you’re married, you may wish to switch to your spouse’s health-care coverage but be sure to act quickly. You typically have 30 days to decide, although this period has been extended by current COVID-19 relief programs.
Last spring, the federal government enacted the Families First Coronavirus Response Act and the CARES Act, which include provisions for retirement and insurance benefits. Read more details about this relief.
Keep in mind that you may have access to another group health plan through other employment, including military reserve duty (e.g., Tricare Reserve Select).
In addition, the health insurance marketplace offers plans through your state’s Affordable Care Act health exchange. Healthcare.gov is a great place to start. Depending on where you live, these options may provide a more reasonably priced alternative.
ALPA members living in Canada automatically have access to universal low-cost medical insurance that continues even if they become unemployed. Some airlines may also offer a supplemental health-care plan that continues for a short period after furlough separation. Refer to your labor contract or check with your airline or your pilot group’s R&I Committee.
Considerations for your golden years
Most U.S.-based airlines offer a 401(k) plan—a defined-contribution account that serves as a retirement savings plan. In many cases, companies also offer “matching” for these plans, contributing a designated amount based on a pilot’s contributions, up to a certain limit. The good news is that these accounts are held in trust and not subject to the claims of creditors if your airline files for bankruptcy.
To better understand the administration of your 401(k), read your labor contract. It likely explains the basic terms of your plan, how long you can continue making contributions after being furloughed, and the process for taking out loans (which are considered a withdrawal and subject to taxation if not repaid).
However, problems can arise because many companies don’t treat furloughs as terminations. Check with the 401(k) plan administrator at your airline or your pilot group’s R&I Committee to determine if you’ll be able to take out loans against your plan while furloughed. Find out about the terms and conditions for making loan payments and ask whether you’re entitled to a hardship distribution.
The CARES Act established a special COVID-19 distribution of up to $100,000 with special tax relief. More information is available in ALPA's R&I resources. Social Security retirement benefits provide some additional financial support to those U.S. citizens who are 65 and older.
Similar to U.S. 401(k) plans, the Canada Revenue Agency provides two types of defined-contribution plans—the Registered Retirement Savings Plan (RRSP) and the Defined Contribution Pension Plan (DCPP). In the event of a furlough, pilots are permitted to withdraw from RRSP accounts at any time, unless the funds are contractually obligated to remain in the account until retirement. DCPP funds can’t be withdrawn prior to retirement but, under certain circumstances, may be transferred to another financial institution or registered plan.
Canadian members can also receive funds from the Canada Pension Plan once they reach age 60. Much like Social Security, the amount available each month is based on average earnings throughout a pilot’s working life, contributions to the account, and the age the pilot decides to take advantage of this benefit.
Binder notes, “It’s a good idea to speak with a financial planner to make sure your 401(k) account selections are in line with your retirement goals and to consider any changes or adjustments you might want to make to the plan as the result of your furlough status.” ALPA has a preferred-provider arrangement with Charles Schwab to offer discounted personal financial services to ALPA families through an agreement with the R&I Committee. Call 877-648-4719 for details.
Insuring your future
Eligibility for basic life and accidental death and dismemberment (AD&D) insurance under your employer-sponsored plan ends when you’re no longer active with your airline. However, your collective bargaining agreement may provide for a limited extension in the event of furlough. You may also be entitled to convert these plans.
If you have optional life insurance or AD&D coverage through an employer-sponsored plan, you should be able to continue coverage by making the required premium payments directly to the insurer. Eligibility for disability coverage also ends with a furlough, although your pilot contract may provide for a limited extension. Under most disability plans, payments due with respect to disabilities acquired before a furlough should continue, subject to the provisions of the plan.
In Canada, effective October 1, ALPA members will be able to sign up for MyFuture, the country’s first online retiree marketplace for health and life insurance benefits. The program features a wide range of competitive medical, travel, dental, and life insurance plans, designed specifically for individuals who lose employer-sponsored benefits either at retirement or when furloughed. Sponsored by the ALPA Canada Insurance Trust, a committee of the Canada Board, MyFuture works in conjunction with leading Canadian insurance companies like Great-West Life, Green Shield Canada, Medavie Blue Cross, and Pacific Blue Cross.
What about coverage under ALPA-sponsored membership insurance plans? The good news is that annual renewable term life and level-term life insurance coverage may continue if you remain on your pilot group’s seniority list with recall-from-furlough rights and maintain ALPA membership. In fact, life insurance can even be purchased while on furlough. The same is true for dental coverage.
However, ALPA-sponsored long-term disability (e.g., base, extended, and lump-sum plans) coverage ends 90 days after the end of the month in which your furlough begins. Again, you must remain on your pilot group’s seniority list and keep up your ALPA membership. New coverage isn’t available during your furlough, regardless of your ALPA status.
AD&D coverage ends on the last day of the month in which you cease to be an active member or become a retired ALPA member. Critical illness and accident coverage may be maintained or purchased while on furlough as long you keep your ALPA membership and pay your premiums on time.
ALPA Canada members have access to a number of benefit plans, which are administered by the ALPA Canada Insurance Trust. Options include basic life insurance, optional life insurance, group auto and home, group critical illness, and more. And as in the U.S., coverage is affected by a pilot’s change in membership status. Learn more.
If you have any questions about ALPA insurance products, contact the Member Insurance Department at Insurance@alpa.org or call 1-800-746-2572.
Many ALPA pilots opt to take advantage of flexible spending accounts (FSA) and health savings accounts (HSA), which let you pay for out-of-pocket medical expenses with tax-free dollars. The two differ in that the pilot controls an HSA, and unused contributions can be rolled over into the following year’s account. FSAs are less flexible in that the annual allotment you contribute is forfeited if you don’t spend it, and you forfeit your account balance if you’re furloughed. However, as previously noted, COBRA coverage will allow you to maintain access to your health FSA.
Binder and the ALPA R&I Committee are constantly looking for ways to update the union’s extensive network of retirement and insurance options. “We all hope the aviation industry rebounds soon and that air travel returns to its prepandemic levels,” says Binder. “In the interim, the R&I Committee continues to look for the best benefits and career protections to secure for our members.”
If you have questions or suggestions regarding retirement and insurance benefits, please contact ALPA’s R&I Committee at R&I@alpa.org.