Pilots at Southwest Airlines can sock away more for retirement, thanks to a new retirement plan benefit that began in August as part of contract negotiations with the pilot’s union, the airline said.
Since many Southwest pilots hit the 401(k) contribution limit before the tax year ends, the airline added a Market Based Cash Balance Plan (MBCBP) so pilots can receive the entire 17% Southwest contributes to their pilot’s retirements in a defined benefit plan, financial advisers said. The company’s contributions exceeding the 401(k) limit would spill over into the MBCBP, which means more savings and immediate tax benefits for pilots, advisers said.
“This is an example of getting back to the original intent of the three-legged stool where the employee, employer and government all took some responsibility for employee retirement outcomes,” said Phillip Hulme at Stars and Stripes Financial Advisors in Douglasville, Georgia. “I love to see it.”
How does the Market Based Cash Balance Plan work?
A MBCBP can hold more retirement money than traditional retirement accounts because it’s not constrained by limits, said Nick Coleman, financial adviser at Bonfire Financial in Colorado Springs, Colorado.
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Southwest automatically contributes 1% (2% starting in 2026) of a pilot’s salary into the MBCBP so all pilots, including the lowest paid, benefit. Once high-earning pilots reach the 401(k) contribution limits, any excess…
