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The Profit Sharing Program is triggered when the Company makes $10 million in pre-tax earnings.  A pool of money from these earnings is created consisting of 7.5% of pre-tax earnings in 2006 and 15% of pre-tax earnings in years beyond.  All employees, including Flight Attendants, will receive a distribution from the cash pool based on her or his Considered Earnings in the year the profit is achieved.

Eligibility

All Flight Attendants who have completed one year of service as of December 31st of  the year for which Pre-Tax Earnings are being measured.

Considered Earnings

The term “considered earnings” include base pay, holiday pay, sick pay, vacation pay, overrides and premiums.  Considered earnings does not include expense reimbursement, incentive or profit sharing payments, imputed income or other similar awards or allowances. 

Payment Date

The payment date will be no later than April 30th of the calendar year in which the Profit Sharing Program is triggered due to a $10 million or greater pre-tax annual profit.

Duration

Unless or until it is improved or terminated through future collective bargaining, the Profit Sharing Program will remain in the Contract.

Examples of Potential Profit Sharing Payments

These examples assume:

• an average of all Flight Attendant considered earnings - $34.89 per hour .
• 85 hours of flight time each month.
• 15% employee profit sharing pool for years 2007 and beyond.

*Actual results will vary depending upon individual considered earnings.

Difference between Cash and Defined Contribution Plan Payments

The Profit Sharing Program default payment is cash, paid much like the Success Sharing Incentive Payment checks are paid today.  However, we do have the option to determine as a group to direct Profit Sharing Payments to our Defined Contribution Plan accounts on a company contribution, tax-deferred basis.  There are several benefits associated with this option, but IRS regulations require that the company treat every Flight Attendant payment the same in order to qualify for the tax benefits of an employer contribution. 

The question before us is whether to obtain these benefits by directing all payments to the Defined Contribution Plan accounts on a tax-deferred basis, or to provide post-tax cash payments.

Defined Contribution Plan Account Payments (Vote Option #1)

If we opt to direct Profit Sharing Payments for all Flight Attendants into the Defined Contribution Plan accounts, we can qualify for IRS rules that treat the payment as an employer contribution to the 401(k) on a tax-deferred basis.  This means that the payment would not be subject to federal, state and local taxes or count against the IRS maximums for annual employee contributions to the 401(k).  Further, these funds can compound tax-deferred inside the account.

Some Members already hit the maximum annual employee contribution to the 401(k).  As more Members take part in contributing to the 401(k) and it becomes the sole source of retirement planning, reaching the maximum annual contribution could happen more frequently.  This year, for instance, those individual maximums are $15,000 for workers under the age of 50 and $20,000 for workers over the age of 50.  The combined company and employee contribution maximum is $44,000.  So, treating these profit sharing payments as Company contributions would enable employees to maximize their 401(k) plan.

Choosing the option to direct Profit Sharing Payments to the Defined Contribution Plan as an IRS-qualified company contribution will provide more flexibility in retirement planning and allow for a potential of greater savings contributed to the 401(k).

AFA continues to work with the company to seek establishment of 401(k)-similar tax deferred arrangements for non-US citizens in locations outside the United States.  We are meeting with the company on a regular basis in an attempt to achieve such plans.  However, if it is not economically or legally possible to establish 401(k)-similar plans for non-U.S. citizens in locations outside the U.S., profit sharing payments will be made in cash.

Cash Payments (Vote Option #2)

If we opt for Profit Sharing cash payments, we will be subject to taxation for the one-time annual payment.

Individuals would be able to take the post-tax cash payment, or you could direct all or part of the contribution to the 401(k).  However, there are several disadvantages to this option.  This individual directed contribution to the 401(k) is considered an employee deferral rather than an employer contribution and it could limit some individuals' ability to defer the maximum from their regular paychecks.  IRS rules require the Flight Attendant to pay FICA taxes and some state’s income taxes (but not federal income tax) on this one-time payment to the 401(k)