Southwest Deferred Compensation Plans

As a Southwest Airlines pilot, you have several savings vehicles outside of the 401(k) and Profit Sharing Plan. ACT Wealth Management specializes in the nuances of the Southwest Airlines deferred compensation plans and can analyze all of your SWA savings options to determine the best strategy for your specific goals.


The Excess Benefit Plan:

The Southwest Airlines Excess Benefit Plan is a non-qualified plan that lets you defer the full contribution amount you would be eligible to defer into the qualified retirement plans if certain tax code limitations did not exist. This plan is an essential component of the Southwest Airlines deferred compensation plans and is designed to provide retirement benefits for pilots who might not achieve the desired level of retirement income through the airline’s qualified retirement plans. Contributions to this plan are made solely by the company and are made on a pre-tax basis.


The Top Hat Plan

A Top Hat Plan, also known as a “top-hat” plan or an “unfunded” plan, is a type of non-qualified retirement plan that is designed to provide benefits to the pilots at Southwest Airlines. The plan allows you to defer a portion of your compensation and the associated federal income tax to a future time. Compensation that you defer under this Plan is not considered “eligible compensation” under the Profit Sharing Plan and can therefore potentially reduce your benefits under the Profit Sharing Plan. But, any reduction to your Profit Sharing contribution that are due to participating in the Top Hat Plan will be contributed to the Top Hat Plan as “make-up contributions.”


The 401(a)(17) Plan

A 401(a)(17) Plan is a plan designed to permit the deferral of the Non-elective Contributions and Profit Sharing on compensation that exceeds the maximum compensation eligible to be taken into account in determining NECs and Profit Sharing for tax qualified plans. This limit is known as the “401(a)(17) limit.” The limit for 2023 is $355,000.



Simply put these plans allow you to save more than what the IRS allows in the Southwest 401(k) plan. Once you retire, you may elect to receive a distribution from the Plan in a lump-sum or in annual cash installments over a five-year period. Your distribution election upon enrollment is irrevocable and applies to all amounts you ever defer into the plan.

A major drawback to each of these plans is if the company were to become insolvent these funds are at risk to creditors. This is something to keep in mind when deciding to participate in these three plans.

This is a brief overview of the Southwest Airlines deferred compensation plans that have for their pilots. If you need more information or a longer explanation about these three plans, please reach out to ACT Wealth Management. We have helped Southwest pilot clients navigate these three deferred compensation plans.

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