Southwest Airlines Pilots Association

Keeping costs low for its 401(k) plan—while still maintaining the quality—has been an imperative for the Southwest Airline Pilots Association, and it is always looking for ways to reduce the fees it pays.

In the past 12 to 18 months, for example, the plan, which covers the union of approximately 10,000 Southwest Airlines pilots, has added four equity collective trusts and replaced its stable value separate account. Doing so has lowered investments costs enough to bring the 401(k) plan’s weighted-average core fund expense ratio below 23 basis points. On the administrative side, total annual costs are 0.0093% of assets, or less than 1 basis point.

“We have economies of scale, so we have negotiated to get lower and lower costs,” says Mike Haynes, director of retirement for SWAPA, whose main offices are in Dallas. “We have fund companies build out investments structures for us, because we are big enough.”

The plan continues to grow rapidly. It had $7.59 billion in 401(k) assets alone at the end of 2022, and the plan is expected to add another 2,000 pilots this year. New hires and their spouses receive a retirement presentation on the date of their hire, emphasizing the importance for their family of saving in the 401(k) plan, their “golden ticket to retirement.”

Each week, the plan hosts a “new hire” class for a minimum of 40 new pilots, to provide further information about how to benefit most from the plan, and to run down the features that make it unique. Among them: The plan is operated by the pilots’ union, rather than Southwest Airlines, and every participant receives a nonelective contribution from the airline of 15% of their compensation on a payroll basis.

Last year, nonelective contributions amounted to over $250 million, more than half of the plan’s total $423 million in contributions. Participants also have access to free financial planning and guidance from plan recordkeeper Schwab Retirement Plan Services Inc., which benefits everyone from new hires to retirees.

Retirees, who are allowed to roll monies into the plan after they’ve left, can access “check of the month” withdrawal support and tools to generate retirement income and have the option to purchase an out-of-plan annuity. Of the plan’s 11,200 participants, more than 1,200 are retirees, with total assets of $1 billion.

Despite the plan’s size, the sponsor prides itself on agility and its ability to promptly make decisions for the plan’s benefit.

“Our 401(k) and investments committee is only three people,” Haynes says. “That’s the perfect unit to make any decision: All you need is a two-to-one majority, and we can have a rapid response and implement things quickly.”

While it may move quickly, the committee is also very intentional about its decisions, says Gordon Weightman, senior vice president of fund sponsor consulting for Callan LLC, another plan partner.

“They have great governance practices,” he says. “It really starts with their people. Their investment committee is very hands-on. They are objective and willing to explore different things, with an open mind. Sometimes that results in a change and sometimes not, but, from a fiduciary perspective, they really go the extra mile.”

—Beth Braverman