Total Plan Assets: $12 billion
Participants: 60,000
Participation Rate: 93%
Average Deferral Rate: 9.7%
Default Deferral Rate: 3%
Default Investment: Age-appropriate Vanguard Target Retirement Select Trust 
Automatic Enrollment: Yes
Automatic Escalation: No
Employer Contribution: 100% up to 9.3% + profit sharing

The Southwest Airlines company culture is reflected in the care the retirement team takes with the company’s plan participants. Southwest believes its people come first, which, in turn, leads to happy customers and shareholders.

Southwest offers two qualified plans. One is a 401(k) plan, wherein employees can receive a dollar-for-dollar match up to 9.3% of their salary deferrals. The other is a profit-sharing plan, started in 1974.

For the past three years, employees in the latter have received an allocation ranging from 10% to 15.6% of compensation. For the 2018 plan year, for example, the profit-sharing percentage for each participant was 10.8% of eligible compensation. Of this amount, 10% was contributed to the Southwest Airlines Profit Sharing Plan, and the remainder was paid in cash outside of the plan.

Elaine Parham, a senior compensation and benefits manager at the company’s headquarters in Dallas, says, this past year, Southwest invested over $1 billion in employee retirement savings accounts through the two plans. “We want employees to understand and appreciate that. The culture of the company and the culture of the plan are one in the same.”

According to Parham, “We’re not just working with resources and assets, but with people who are important to us. So we’re given free rein by the executive team to create new ways to connect with [them] and to help them understand and value the investment Southwest has made.”

The company has a broad spectrum of employees—from entry-level ramp agents, customer service agents and call center employees to skilled mechanics, flight attendants and pilots—working in the 100 U.S. cities where the airline operates.

Embedded Educator

In the last year, Southwest introduced a dedicated retirement education counselor from Empower who is fully embedded within the Southwest retirement team and offers workshops, one-on-one sessions and educational guidance. In her first year with Southwest, she conducted 66 live workshops, contributed to 23 pre-retirement sessions, participated in 21 benefit fairs, and provided recorded educational sessions that were viewed by over 2,300 employees.

“She sits in on a lot of our meetings when we talk about strategy and plan operations, and provides her insight,” Parham says. “She engages well with our participants and is our eyes and ears. She can tell us what employees may be concerned about.”

When people plan for retirement, they will need to face more than the financial aspect. They also need to prepare psychologically for the emotional separation of leaving a company that has been so much a part of their lives, Parham explains. “We partner with our health care team because we have certain health benefits that may or may not come into play. We bring many different resources together, at several different locations each year, to discuss how to prepare for your retirement.”

Southwest automatically enrolls employees at 3% and promotes a voluntary automatic increase, along with matching up to nearly 10% of deferred pay. “We’ve done a lot of analysis, and, as a whole, we don’t feel that our employees are lagging,” Parham says. “And we feel the profit sharing complements the 401(k).”

The median lifetime income score of employees is 102%. The percentage indicates how likely they are to be able to replace 75% of income. Employees who are on track receive a score of 100%. Over half of the population scores above that, which confirms that Southwest is preparing employees for a comfortable future, Parham says. Still, the rest are not there yet, so, she says, the team continues to educate.

Empower, also, conveys a message about saving, through visual means. When employees log on to its website, they can see a green circle, representing their retirement readiness; it may be, for example, 50% or 65% full. They are shown that, if they take action, they can reach that 100% mark.

Patrick Heffner, managing director of Empower Retirement in Overland Park, Kansas, and the firm’s recordkeeper relationship manager, says he is especially impressed with how Southwest’s executives connect with the other employees. “It’s very casual, friendly and warm. I’ve seen Julie Weber, vice president and chief people officer, talking with the employees at some of these events, and pretty much every other member of the team interacts the same way. You might think the vice president of a company such as Southwest stays behind the scenes—that’s not the case. They [all] treat a new employee the same way as they treat someone who has been with the company for 30 years.”

Rallies and Parties

Southwest generally has about four rally events per year. One precedes the announcement of the profit-sharing contribution. Heffner describes a rally as a combination of a rock concert and a sporting event, held in a large sports complex and attended by 7,000 to 8,000 happy, loud employees. Formal presentations are made by senior leaders of the company, including CEO Gary Kelly.

“Inside the venue, they’ll have a blimp flying around dropping prizes and vouchers for things such as shirts, towels and hats,” Heffner says. “Outside, they have circus-like tents set up, and they bring in 50 to 70 food trucks. Every employee gets coupons for food and drinks—soda, water, wine, beer—whatever they choose.”

Heffner says there is a benefits area where Empower, for one, sets up a large table and gives away a hand-out related to the profit-sharing plan. Additionally, as employees move past each provider’s table, they receive a game piece. If they collect all of the game pieces, they are entered in a raffle to win prizes.

“It’s not unusual for us to talk to 1,000 people who come through,” says Heffner. “Each year, we have an objective. One year it was to get people to register online. Another year it was to be sure a retirement plan beneficiary was designated.”

After the event, Empower debriefs with the Southwest team to see what was learned, and the team uses this information as agenda items going forward.

“Deck parties” are held every two weeks on the deck at corporate headquarters. These are company happy hours, open to all employees, that coincide with the first day of Southwest’s new-hire classes. At each party, the roughly 300 to 400 new hires have their first experience with the Southwest culture. Heffner says, “We talk about the retirement plan, and in general these parties demonstrate [Southwest’s] whole approach.”

The company carefully documents all of its processes related to the retirement plans and conducts annual plan committee fiduciary training plus fee reviews. Investment performance analyses and plan strategies are reviewed at least quarterly. Competitively priced passive target retirement trusts with five-year target retirement dates recently replaced actively managed target-date funds (TDFs) with 10-year retirement dates.

Currently, Southwest is in the process of introducing full integration of health savings account (HSA) assets on its recordkeeping platform, which will include investment mirroring. The company also plans to roll out a campaign to promote post-employment asset retention, in anticipation of expanded decumulation strategies. —Judy Faust Hartnett

 

 

 

 

 


 

 

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