Retirement plans

[race#53]

Is this true?
For Southwest's pilots, the number-one ranking means their plan "gets average plan participants to retirement faster than any other 401(k) plan in the country," says Bryan Lorenz, Brightscope's vice president of data. "A participation rate of nearly 100 percent as well as the highest combination of company generosity and salary deferrals contributed to this outcome."
That must explain why the airline's pilots have that legendary in-flight sense of humor.

 

[gobyebye]

Not sure which part you are asking is true, but the swa pilots 401k plan run by our union was recently ranked the number one 401k plan in the country by brightscope.

 

[Dan Roman]

Just curious. Best 401K???? I looked it up and yes SWA has more matching than Spirit, VA JetBlue. So perhaps that's the peer group they were looking at. However, they are quite a bit less than the Legacys DC and 401k percentages. Hawaiian had the highest at 19.4, Delta was 12 + 2% UAL was 9 + 7%. Even USAir was higher at 10%. Granted they may earn less per hour in some of the comparable positions, but the reality is SWA contibutes less towards retirement per dollar earned than most airlines.

I know they established themselves by being the airline that had stock options and profit sharing instead of retirement and only recently have had even that type of matching so you don't have longevity working for you yet.

I'm not bashing you guys, honest. I am really curious how you folks figure SWA's 401k is some kind of superior plan?

 

[redflyer65]

It was ranked as one of the best 401k's in the country...not just among airlines....Across the board, all companies.

It was rated that high because of the options available regarding investing, plus the low cost that SWAPA negotiated.

Very nice benefit, along with all the others.

 

[Dan Roman]

Fair enough, I'm still trying to figure how it ranks as "best" when others contribute more towards retirement per dollar earned than SWA does.
For example, we have a brokerage account which has limitless options and plenty of no load funds to chose from. Every dollar put in goes towards the investment of your choice of which there is pretty much anything you want to invest in.
I think it's interesting that SWA (or the guy they got to write that article) seems to be claiming a superior retirement program when in fact it's not. Again, not bashing, just observing. Sounds a little self congratulatory to me. Perhaps some of that "warrior Spirit"?

 

[kf4amu]

If my company matched me 100% but the plan only had one crappy fund, it would still be a crappy 401K plan

 

[redflyer65]

Dan,

I think Brightscope is an independant company that does the ratings.

The actual funds that are available to SWAPA pilots are chosen by our SWAPA 401k guys. They interview each fund manager and negotiate the rates for our pilots (sometimes they make changes if they aren't satisfied). We have an option where you can move your retirement money to a Schwab account and have at it. Trade whatever you want basically.

They just recently added a low fee annunity. I haven't reviewed the selection, but we have plenty of choices across the board.

 

[Stifler's Mom]

Could SWA have more self-directed options that are outside of the stock market? (ie real estate opportunities)

 

[jonjuan]

Fair enough, I'm still trying to figure how it ranks as "best" when others contribute more towards retirement per dollar earned than SWA does.
For example, we have a brokerage account which has limitless options and plenty of no load funds to chose from. Every dollar put in goes towards the investment of your choice of which there is pretty much anything you want to invest in.
I think it's interesting that SWA (or the guy they got to write that article) seems to be claiming a superior retirement program when in fact it's not. Again, not bashing, just observing. Sounds a little self congratulatory to me. Perhaps some of that "warrior Spirit"?

Dan,
You just don't get it. Their plan goes to Eleven.
http://www.youtube.com/watch?v=EbVKWCpNFhY&sns=em

 

[Dan Roman]

Dan,
You just don't get it. Their plan goes to Eleven.
http://www.youtube.com/watch?v=EbVKWCpNFhY&sns=em

Now I get it. I can be a little slow on the uptake but that helps.

 

[Juniority]

It's a good plan... although, if she couldn't take half of it, that would make it a great plan.

 

[CesnaCaptn]

Does SWA have a workaround for the IRS limit? It seems to me, most captains couldn't even contribute the amount the company would match without running into the limit. What is it these days? $17k?

Your match is around 9%, right? So a captain, for simplicity making $200k, which I'm guessing almost all make more, would be contributing $9%+. Is that a problem? Also, when I was flying for SkyWest, I know captains were having an issue with being considered "highly compensated employees." Because the pilots were in the same 401(k) as all other frontline employees, there was some rule that we couldn't contribute some relatively higher amount. I just remember the senior captains complaint that they had to stop contributing in November and even got some of their retirement funds refunded. Does that ring any bells?

 

[redflyer65]

All Captains and most FO's max out the 17k each year. Captains sometimes by March/April. I usually max out around July/August.

After hitting 17k, the company continues to contribute 9.3% the rest of the year.

We have an 'overage' plan for the Captains(because FO's don't quite hit the 235k mark each year...unless your flying premium all the time). I believe it's a 401a plan that can shelter more income. We call it Top Hat, its good up to 25k total. Then you add in the Profit Sharing and some Captains get a 'rebate' check because they have hit the limit on all sheltering vehicles.

There has been some discussion about adding a B plan to capture more retirement income going forward. Negotiations are on-going.

From the original post, SWAPA/SW has nothing to do with BrightScope. They are a third party that evaluate 401k plans across the board. The SWAPA 401k committee has done an awesome job to keep our choices at the top of the list...for all companies across the country.

 

[Cruncher]

Dan,

I'll try to answer tomorrow. SWA's plan is the first I've really looked at. As a Boglehead, it really can't get much better.

More latr, C

 

[atldc9]

.....

 

[fam62c]

Remember that although SW may not have as high a company contribution as some of the legacy carriers their pay rates are higher so the lower percentage works off of a higher W2. 9.3% of 150K is better than 12% of 100K. It's the percentage times the salary that matters in the end and so far SW has stayed at or near the top of the salary pack in the recent past. This gap should start to close as legacy carriers start to (hopefully) get past the bankruptcy contracts and get better deals.

The group that took a hit was the AT pilots because they had a higher match (but lower incomes) and now they have the lower SW match but they don't have the higher SW pay. They get to participate in the SW profit sharing now but, again, that's a percentage of pay and the AT pilots have lower pay. Depending on what the SW profit sharing pays out and considering the time value of money (you don't get the 2012 amount until late 2013) the AT pilots may end up with a reduction in retirement compensation for 2012. The other nice thing about the old AT plan was that the company contribution was just that, a contribution not a match so if money was tight (especially for junior FO's who don't make that much) you would get the company portion even if you couldn't afford to contribute much or even any on your own. AT pilots could put in nothing and get 10.5% from the company (that would have risen to 11.5%) now they have to put in at least 10% to get 9.3 from SW.

 

[Cruncher]

Dan,

Sorry this isn't as in depth as I would have liked to explain. Brightscope is a third party and not affiliated with SWA, or any other corporations as far as I know.

Anyway, our high score is a BS ranking based on participant rate, company match, fees, fund options, .... The match percentages are well known, most pilots if not all hit the 402(g) federal limits ($17k in 2012).

Someone mentioned our Top Hat program. To further describe this plan: Our Top Hat program is a Rabbi Trust non-qualified compensation plan. Essentially, it allows us to set aside up to $50k per year (tax deferred), lowering our current taxable income. This money is not protected from unsecured creditors though, and can be taken back if SWA were to ever go through bankruptcy. The options are limited in this plan; I think the income limit is $135k to participate. You have two options upon departure (lump sum or paid evenly over 5 years). There are other details I'm not familiar with, as I don't participate in this program. Honestly, not positive if BS even considers the TH program.

Someone mentioned "high compensated" employees. This is a federal non-discrimination test. Prolly be Googled, but in essence, the feds limit high compensation employees (by definition, almost all SWA pilots; think it was $110k last year) to a maximum 401k deferral relative to the savings rate of the "non-high" compensation rate employees. For example, if the rampers on average save 4% of their income into the 401k, this limits pilots to 6% (I Googled it . We'd miss out on 3.3% match. Hope that is not confusing.


deleted, I started to get in the weeds a little too much Already getting too long, let me just try to summarize.

By contract, SWA caps all retirement plan matches to $25k annually.
Any amount over the 415(c) excess limit is cut as a check up to this $25k limit.
Our 401k provides access to a brokerage account. The PCRA (Personal Choice Retirement Account - Schwab), we can direct up to 95% of our 401k. From here, aside from the funds that are already in the Mutual Fund side of the account (& LUV), you can buy pretty much anything (well aside from high risk stuff - I think; again I don't this so not as familiar).
The fees are incredibly small. The S&P 500 index fund has a 0.025% expense ratio.
Schwab ETFs trade fee of charge, and ARE the lowest in the industry for the particular asset class.

We self manage the 401k options. Someone mentioned an annuity option coming up. I know John, he is hyper cost sensitive, so the annuity will probably be one of the best in the nation as well.

 

[HA25]

The southwest 401K might be the best in terms of quality of the program, and options available, but I'd take the Hawaiian 19.4% (15% for new hires) deposit every month (non match) any day .. that's a tax free deposit whether you put a dime in or not ... that is the current "Bar" in the industry today for retirements.

 

[Cruncher]

HA,

I agree! Your plan is my goal!

 

[Full of LUV]

Fair enough, I'm still trying to figure how it ranks as "best" when others contribute more towards retirement per dollar earned than SWA does.
For example, we have a brokerage account which has limitless options and plenty of no load funds to chose from. Every dollar put in goes towards the investment of your choice of which there is pretty much anything you want to invest in.
I think it's interesting that SWA (or the guy they got to write that article) seems to be claiming a superior retirement program when in fact it's not. Again, not bashing, just observing. Sounds a little self congratulatory to me. Perhaps some of that "warrior Spirit"?

Dan,
The legacies plans you refer to are mostly their "B" funds, and not just 401K's, so brightscope would not consider them in their rankings. Like someone else pointed out, this was done because the IRS limits are too low to capture the negotiated "b" fund contributions in a 401K.
Most of the legacies have a 401K open to all employees that are well run, but not nearly as generous, with only a 2-5% matching (I'm not sure what SWA's matching is at) but that would be what brightscope would be comparing to SWA's plan.

This year a DAL captain making $200K would get a company contribution of $28K into their selfdirected B fund and then they could get up to a $4000 match into their 401K account as well if they contributed. (the latter is all brightscope would be concerned with).

The BEST 401K in the world will never compete with our predecessors Defined Benefit (pension) plans in terms of generosity, but at least the B funds and 401K's are the pilots money and can never be lost in a BK or job change.
Aloha,
Luv