Southwest Airlines has established a pension plan for its pilots.
The new market-based cash balance plan began Aug. 1 as part of a contract Southwest Airlines negotiated with the pilot’s union earlier this year, said Monica Centers, Southwest’s manager of retirement and total rewards, in an email.
As part of the agreement, Southwest now contributes 1% of a pilot’s wages to the new pension plan, with the contribution increasing to 2% in 2026, according to Nick Coleman, a certified financial planner with Bonfire Financial, a fee-only independent registered investment adviser firm.
On top of that, the new pension plan gives pilots who have maximized their 401(k) accounts an avenue to save more, Coleman said in a LinkedIn post.
If pilots max out their 401(k) accounts, the 17% contribution they would otherwise receive from Southwest now spills over into the new pension plan.
The spillover contributions occur when pilots hit the cap on total 401(k) employee and employer contributions, or $69,000 if under the age of 50. Pilots making more than $345,000 — the maximum amount on which they can receive the 17% employer contribution — also benefit from the so-called spill.
As of Sept. 30, the plan had accumulated $26 million in assets, according to data provided by Southwest.
Southwest’s cash balance plan follows IBM’s implementation of a similar plan in January. IBM’s “retirement benefit account” gives employees a monthly pay credit that is 5% of their eligible pay and pays 6% annually on their balances through 2026. Unlike Southwest, however, IBM suspended its 401(k) matching contribution.
Of the different types of pension plans, cash balance plans are the only ones that have gained favor, according to Cerulli Associates. In 2020, more than half (51.1%) of all pension plans were cash balance, up from 14.6% in 2009, Cerulli said in a research report in the first quarter.
