The SWAPA Number
The SWAPA Number
Retirement | Contract 2029 SEP Education
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In this episode of the Contract 2029 Survey, Educate, and Poll Series, host Tony Mulhare is joined by Tony Caparella, Debi Shields, Damian Jennette, and retiring SWAPA IT Director Will Young. The discussion focuses on retirement and benefits planning, with Will sharing firsthand lessons and challenges he encountered while preparing for retirement. His experience provides practical insight for pilots and employees navigating their own retirement decisions
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Welcome back to the Contract 2029 Survey, Educate, and Poll Series. I'm Tony Mulhair with Tropic Communications, and today I'm sitting down with Tony Caparella from Benefits, Debbie Shields, our Benefits Administrator, Will Young from IT, and Damien Jeanette with the 401k Committee. Why Will Young? What does IT have to do with retirement benefits? Great question, and the answer is absolutely nothing. But Will is preparing to retire very shortly after this recording was made. And so he is going to walk through some of the issues that he has encountered that we may find informative for this discussion. All right, guys. So thanks for joining me for this uh podcast today. We're going to talk about benefits as I approach and get into my retirement. And so for those keeping score at home, uh, we're now in section four alpha five of the CBA. And so let's give a quick recap and then we'll talk about some potential improvements there. And then we'll, as we talk through this, you can hit some of the things that you've run into as you've looked at this in your upcoming retirement. So, Debbie, why don't you walk us through what those benefits are for our retired pilots, specifically in the medical category?
SPEAKER_02So if a pilot decides to retire early and has at least a minimum of 10 sick trips to carry them for to pay for retiree coverage, if they retire between 55 and 60, they're eligible to and have 15 years of service, they're eligible to um elect coverage for themselves and any eligible dependents under choice plan C and basic dental up to the age of 65 or when they become Medicare eligible.
SPEAKER_05So for that retirement early, does that pilot still have to use 10 sick trips out of their bank to have that coverage a month?
SPEAKER_02Yes. So let's say if they have a minimum of 10 sick trips to get in to qualify for the retiree coverage, but they exhaust all of their sick trips, let's say the following month or even down the road before they turn 65 or 67, Southwest offers what they refer to as age-banded retiree rates, similar to Cobra. There's a little bit of difference. So they it if they have enough to get into the retiree plan, but they exhaust their sick trips, then they are eligible to continue to pay out of pocket for continuing coverage.
SPEAKER_04Okay. So that's a a great thing to know. And obviously, I know you don't have it sitting right in front of you, but ballpark-wise, um, what kind of rates would you be talking about?
SPEAKER_02Aaron Powell On an average, I would say it for one person, you know, it could be a thousand dollars.
SPEAKER_04Okay. And what about like a family type rate?
SPEAKER_02Aaron Powell Family, it's m most likely probably about sixteen hundred dollars.
SPEAKER_04Okay.
SPEAKER_02And it depends on, you know, if they have the the employee, the famil the spouse and children.
SPEAKER_04Aaron Powell I think one of the things that's worth talking about as we look at contract 2029 is that 10 TFP per month has just existed in our previous contracts for some time, maybe contract 2012 or before. I don't recall it being changed in contract 2020. Um, but now that our pay rates are such that 10 TFP for a 12-year captain is north of $3,500 a month, that's a very expensive healthcare plan.
SPEAKER_02It is. I I mean, and Cobra may be very close to those rates. You may have it maybe cost you less on the you know, market plan, but I don't have any comparison for other plans.
SPEAKER_03Okay. But if you have sip trips that exist when you retire, you can't use them for anything else.
SPEAKER_04Right. Correct. Unless we're able to negotiate in this contract some sort of uh buyback program. Okay, so that's uh that's great. Debbie, uh any other age bans that we need to talk about for pilots that retire early?
SPEAKER_02No, um not at this point. Cobra and age bandit are very similar in in cost, but there's not any any age bans for any other coverages for life insurance because all that all ends when they retire.
SPEAKER_04Okay. So right now the standard is is I retire at age 65. I'm immediately Medicare eligible. Yes. So Will, as we look at some of these retirement benefits, how have these contractual benefits played out for you in practice as you look at your upcoming retirement here in the next uh several months?
SPEAKER_03So my wife is younger, so I'm gonna be any sick trips I have remaining, I can use 10 a month to pay for my wife's medical coverage under plan C. Yeah. Okay. Until she reaches 65 or I exhaust my sick trips.
SPEAKER_04Okay. And so that brings up another point that we we talked about a little bit earlier. Is let's say I'm a a pilot that reaches age 65. I'm divorced, but I have young dependents that are children, but I'm no longer married to someone that's younger than me. Am I able to cover those children under our benefits?
SPEAKER_02No, the contract currently says younger spouse, you know, provision. So the dependents would not be eligible unless you had a younger spouse.
SPEAKER_04So there's a potential there for something we need to address in contract 2029. Okay. Would you kind of keep going with your train of thought there as you approach this, what you were looking at?
SPEAKER_03Well, just some of the things that snuck up on me um that I hadn't been really paying a whole lot of attention to, probably in the last few years before I retired, was uh Medicare and how that works. You're required to uh sign up for Medicare and uh there's a seven-month window around your 65th birthday. You have to sign up for Medicare, Part A and B. And then you have to start thinking about ways to cover the gaps in the Medicare Part B coverage, medical, which is part uh C, which is Medicare Advantage or Medigap. And those are those are for what types of things? So it's for things that part B doesn't cover. Like, for example, Part B does not have a uh cap on how much you spend each year. Right. So Medigap and Medicare Advantage would cover theoretically cover those. Those are all paid plans. You know, there's companies all over the place looking to get your business and have you buy their insurance plan.
SPEAKER_04That provide supplemental coverage to Medicare Part B, right?
SPEAKER_03Yeah, and you'll start getting invitations from companies to have steak dinners at a big nice steak club, and all they're trying to do is just get those commissions.
SPEAKER_01Sale, sell, sell.
SPEAKER_04Very good. So you did run into some uh income-related monthly adjustment amounts for Medicare, correct? The Irma.
SPEAKER_03Yes. So there you have to start planning what your income's gonna look like after you retire. So when you have uh income that's you owe taxes on, so like distributions from qualified plans and things like that, anything that you would be taxed on, then those count towards the uh earnings limit. Once you reach, I can't, I don't know exactly what the limit is off the top of my head. But once you hit that limit, all of a sudden you get fees.
SPEAKER_04Yeah. So the data that I was able to see on the Medicare site said that your there's also a look back that's required, right? Yes. So in 2026, those premiums look at your 2024 income and a married filing jointly income over $342,000, which is every one of our captains generally, your plan B premiums double from $200 a month to over $540 a month. And if you made over $400,000 two years ago in 2024, then that premium triples. Exactly. Um and then that would continue for two years into your retirement until your uh look back starts to show your post-retirement income, which then is affected by your uh 401k distributions and other qualified plant monies.
SPEAKER_03There is an ability to file an appeal, but I hear it has not been successfully done by many of our but yes, you need to start planning for those kind of things. I mean, there's ways to do it. I mean, if you, for example, let's say you took all of your once you retire, start taking your distributions from Roth, you know, you can keep yourself under that window.
SPEAKER_04So we're certainly not offering any financial advice. Pilots need to talk to their financial advisor, but there are some things to think about as far as how your post-retirement income, taxable and non-taxable, affects things like your Medicare plan B premiums. Anything else to add on to that conversation from either of y'all?
SPEAKER_00To dovetail what he just was talking about, the Roth withdrawals do not increase Irma, but a Roth conversion does. So that that's the one little piece when people are trying to put all that uh metric together. So if you have a Roth conversion, it could trip you over. Okay.
SPEAKER_04And so you're talking about taking my uh non-roth, either 401k or IRA and converting that into a Roth 401k or IRA.
SPEAKER_00Yes. And the other thing, especially older guys and girls, uh, a lot of people have uh muni bond interests, and that of course does push you over the uh Irma MAGA. So be be cognizant of that.
SPEAKER_04Well, anything else that uh as you kind of walk through this uh this process over the last uh several weeks that were big pain points for us to consider as we look at as we look at this?
SPEAKER_03Contractually, no. I mean, thing things that have uh I've had to start paying attention to is okay, when I want when do I want to start taking Social Security? You know, what age do I want to do that? Then other things like um thinking down the road, required minimum distributions from your uh qualified plans, uh, those start around age 75-ish for me. So you want to start planning around that, you know, how to avoid that, how to minimize those required minimum distributions. Then uh, you know, long-term planning and estate planning are another some other things you need to think about.
SPEAKER_04And so if we if you go to swap.org and you go to our benefits page, we have some uh retirement checklists uh that are out there. Now, most of us aren't looking at those checklists because we're preoccupied with airplane checklists for the next couple of years. But what are in those checklists and what are some of the things that uh we ask pilots to look at?
SPEAKER_02Like Will mentioned, all of your estate planning or when you take your distributions, you know, your 401k. I guess the big picture would be to talk to your financial advisor. Yes, right.
SPEAKER_04And and Schwab, and part of what we pay pay for at Schwab is the financial uh concierge, and they can walk you through some of the basics, at least, whether or not they get into your uh total personal compensation package uh or not.
SPEAKER_03I mentioned that you'll get uh letters in the mail about going to state dinners and stuff like that, but Southwest puts on every few weeks a webinar about how to navigate the whole Medicare thing. Okay. So and that's unbiased, so it's a good tool to use.
SPEAKER_04Okay. And they certainly have their retirement checklists on the on SWALIF for our pilots to go look at as they approach that. All right. Um what else?
SPEAKER_03Well, the only thing that I would suggest, and this may not be a contractual uh issue, but it would be nice if we could use our you know ability to negotiate with insurance companies on group uh discounts and stuff like that for some of these uh meta Medicare Advantage, Medigap and prescription drug plans.
SPEAKER_04Okay, so similar to our swap a run 401k, maybe some in our S C D and L T type of uh plans. So Debbie, that would get probably thrown uh into your lap.
SPEAKER_02Into the benefits group, yes.
SPEAKER_04Yeah. So uh what do you think that's something that we could that is feasible? Do you think that is something that we could look at doing as a union?
SPEAKER_02I think we can look at it. I think Damien's got a lot of good, you know, resources and information. Um we don't administer Medicare or whatnot, but there I think that would be great. Like we'll mention, yeah, Southwest does offer information on Medicare and Social Security, and it's recommended that you go to one at least one of those sessions.
SPEAKER_05Right. Okay. In our considerations uh before retiring checklist, we also point out to pilots to make sure that they go to the Southwest virtual pre-retirement workshops, which occur periodically.
SPEAKER_04So, Damien, as we look at contract 2029 as part of this SCP process, what what are some avenues we could pursue for retiree uh medical?
SPEAKER_00Well, one of them, the retiree health account, RHA. That is one avenue. Um we actually got it in the 2016 contract, but during COVID times when we were going to implement it, we actually had a stop. Um it it has pros and it had a lot of cons to it. And so that's why that stopped. But with that said, American has a type of HRA, and then United does have an RHA, uh slightly different, but very, very close to the same thing. Um the other thing that people need to think about, you know, the 10 TFP, as we talked about before, uh Will talked about it too. It was very expensive, right? 10 TFP for one month of coverage. The alternative to that, if you were not able to get and achieve a sick bank buyback, let's say, would be um active rates. Because today, once you use that 10 TFP for one month, then you have to pay the COBA rates, what Debbie was talking about. Right. So at Delta, um, if you're over the age of 60, you just pay 100% of the active premium rate. If you're between, I'm sorry, that's under age 60. If you're between 60 to 65, you pay 45% of the active monthly rate. So that's a different vehicle to follow, right? Um United, they do theirs on a years of service. So if you've been there less than 20 years, you pay 80% of the premium. If you've been there over 25 years, you're paying 40% of that active premium. So just remember that active premium rate is going to be significantly less than that COBOR rate. So that would be an alternative uh vehicle. You know, if the if the membership was uh amendable to that, then you know the NC could pursue that.
SPEAKER_04Okay. And uh so just kind of circling back to those uh the RHA or the HRA, depending on which of our peers we're talking about, what's kind of the high-level overview of what one of those plans would do for the pilots?
SPEAKER_00So the we'll we'll talk about the United RHA. Um so under their previous construct, any excesses of the 401k actually went into the R RHA retiree health account, and you were not permitted to use it until you retired. But it went into basically a giant Viva. You remember we used to have a Viva that we paid $15 a month into, but it's the same type of vehicle, but those monies would just go in there and compound, and uh, you know, they would grow. And then the idea was when you retired, you just submit a receipt for whatever it is medical expense you had, and that money was paid directly to you because you had used that money. It's a reimbursement type program, right?
SPEAKER_04Okay. So uh instead of being a health savings account where you're just you know using a debit card that's tied to that HSA, this HRA is similar except that you have to file for reaching.
SPEAKER_00Well, you can't actually you could use a debit card, but you just have to be retired. That's the the key difference to that versus the HSA, right? Because you could use HSA prior to age 65. This one you have to be separated. So you could be technically under age 65, but you have to be separated from the company completely.
SPEAKER_04Aaron Powell Okay. And uh for our military veterans that are still using TRICARE that haven't been able to participate in HSA because of TRICARE, would an HRA be something that they would also be ineligible for, or would there be a possibility they could get uh rolled into something like that?
SPEAKER_00Aaron Powell That's a great question because there's a lot of misnomers about that. So they can participate in the RHA. Because once again, you can't receive any funds from it or use it until after retirement. So age 65, technically. And so that would actually be a prohibition in the uh in the contract language. Uh if somebody were were to retire early, but they were still on TRICARE, they still couldn't receive the monies until age 65 when they went on Medicare. So that would be uh uh one of the factors to to play in all of that. So it's it's uh it's got pro positives to it, but the negatives would be um it goes into a Viva. And so uh upon your death, only the spouse could receive the funds or use the funds rather. They wouldn't receive the whole funds, but you could use the funds. But if the spouse then died and they had eligible dependents, uh it stays within the VIBA and then is dispersed into the entire pilot group. So that would be, I would consider that a negative. Probably a lot of people would too. So um that's uh a reason that it wasn't uh further pursued. But um and United, their big deal, of course, they were using excesses from the 401k, so the 401A 17 and 415 C excesses, they all went into it. And talking to their a lot of their members, they felt that it was overfunded, that they were putting too much money in there. Of course, they've changed uh through negotiations how that's uh being handled today, but that was a the previous contract.
SPEAKER_04Very good. All right, Tony. You wanted to talk about profit sharing for a retiree. So how does that work?
SPEAKER_05Aaron Powell To be eligible for profit sharing contribution applicable to the year of your retirement, you must accumulate a thousand or more hours of service during that plan year. You're credited with 190 hours of service for each month in which you complete at least one hour of service. That's one trip per month.
SPEAKER_04Aaron Powell Not super great at math in public, but that's roughly six months worth of uh if you're working full time up until you retire, that's roughly six months of uh the year in order to be eligible for profit sharing of that year.
SPEAKER_05Correct. So basically if you retired, you know, July or later, then you'll receive profit sharing for that year. Okay.
SPEAKER_03Very well. Also you get paid for your vacation that you accrued for next year as well. So for me it'd be uh what, uh seven months worth of accrued, however many weeks that is or days. Roughly over half. Yeah.
SPEAKER_04And is that payout on your last paycheck?
SPEAKER_01They cut a final and then they'll do the accrued vacation, you'll get a separate check, I think. Okay. If they still do that same hour.
SPEAKER_03Okay. Oh, one other thing when it comes to uh 401k and the non-qualified plans, need to look at see how you elected to for those non-qualified plans to be distributed way back when you signed up for and so that is a it's an irrevocable election. I didn't know what it was, but you can find out by going into the Empower site and looking at distributions, it'll tell you exactly what you had selected.
SPEAKER_04So key takeaway here is that when you are looking at signing up for the top hat and the other non-qualified uh plan, is that whatever election you make at the time that you sign up is not changeable. Is not changeable. And that's how you're gonna get your distribution five, 10, 15 years, maybe 20 years down the road. Exactly. Let's talk about some of the uh the vehicles. And we've we made increases and gains in the uh both the 401k. The market-based cash balance plan was a new product uh for contract 2020. But these financial instruments are always something that is uh changing and moving amongst uh our peers as well as we go through these rounds of negotiations. So, Damien, what's what's on the horizon for the market-based cash balance plan, uh 401k, and and what is uh what are we seeing in the industry as far as uh other retirement vehicles that we can pursue?
SPEAKER_00So where the industry has gone on retirement plans, um you know, Delta led the way on the market-based cash balance plan. Uh, they actually uh got theirs when we were still in Section 6 negotiations. Um they, of course, had a one-time year-in or year-out election prior to the start of the plan. And if you are in the plan, then that means anything over the 401 A17 limit or the 415C limit goes into the market-based cash balance plan. So remember the 401 A17 is the wage limit. That's $360,000 for this year. Uh any of those wages above it would go into the market-based cash balance plan. Uh, as everybody knows today, uh our plan uh for the NEC specific uh either goes into the non-qual plan or comes back as taxable cash. At Delta, if you elected into that plan, then that anything over that $360,000 in NEC goes into the market-based cash balance plan. Uh and then the 415C, of course, is uh uh $72,000 for this year. That's the the total bucket, right? The big fuel tank, if you can envision that. That $72,000.
SPEAKER_04Right, between whatever I put in and whatever my uh company NEC is, right?
SPEAKER_00Right. Below that $360,000 limit. Uh that $72,000, if there's excess to that, then it also goes into the market based cash balance plan at Delta. Now somebody elected out of it. That uh all of those excesses would come back as cash. Uh American just got theirs, they they ratified right after we did, or around the time we did, but they just got their private letter ruling back. And so they were able to devise a plan where you can opt in or opt out of the plan uh every contract cycle, which was uh that's kind of a new twist to it. Um happy to see that progress in the defined benefit world. Um, but they do the same metric too. So the uh anything over that 401A 17, anything over that $360,000 in any C or NEC that exceeds the $72,000, it all goes into the market-based cash balance plan. But their election is every contract cycle. So if you uh decided to be in it this year, then you could fund it. And then in the next contract cycle, you decide I don't want to be in it anymore, then it would come back as taxable cash. Uh that was kind of a new uh play on it. Like I said, it was really, really cool to see. Um, United, I don't think they've finalized their plan yet. Uh they may have, but ours is a little unique because uh, of course, we get the 18% NEC, but the 2% of market-based cash balance plan is is a different vehicle. And so uh once you hit that 401A17 limit, though, it comes back as cash or goes in the non-qual plan if you if you want to. So just to think about it too, we have two defined contribution plans. That's the 401k plan and the profit sharing plan. So, in essence, we have those three main vehicles market-based cash balance plan, 401k, and profit sharing. And then you have all of the non-qual plans that surround that. So you have a lot of opportunity here if you want to put it into the qualified or non-qualified plans, or you also have the option today to bring it back as cash, and maybe you're putting it into a brokerage account and investing it in a different way.
SPEAKER_04Right. So you mentioned that uh I think you should just say that American got their uh IRS private letter ruling back. At the time of this recording, we are still waiting on our private letter ruling to come back on our market-based cash balance plan, correct?
SPEAKER_00That is a true statement. Yep. Still waiting. Uh it's asked every uh about every month, and they are still waiting to hear back from the uh IRS.
SPEAKER_04Okay. And so as far as we look out into this process for us coming up for contract 2029, do you see us looking at any of those particular vehicles like American being able to opt in and opt out on a contractual basis? Or like how do you see that language uh potentially changing for us?
SPEAKER_00Well, it slightly makes ours problematic, right? So if you were to opt out of the plan or have that availability for opt out of the plan, then there's no way for you to receive the 2%.
SPEAKER_04Okay.
SPEAKER_00There's no mechanism, right? Right. Because the the other plans is all NEC, goes over the spills over the limits, and then is tucked back into the market base. This one has, we're asking for one component plus that you already got the two percent. Um once again, that's that's why we were asking or are asking the IRS for the 415C NEC XS specific. So uh mathematically speaking, anything below that $360,000, when you look at the NECs and then the uh pilot contribution, and this is ignoring the uh catch-up piece to that. If you put those monies in, the maximum that could go into the market-based cash balance plan if it were approved today, would be $17,300 of that ex excess monies.
unknownOkay.
SPEAKER_00So you get the 2% and then $17.300.
SPEAKER_04Once we get the private letter ruling back.
SPEAKER_00Yeah, yeah. Yeah. Because there's uh once again, there's a big misconception that it's all of the excesses, excesses that we're asking for, and that's not true. It's just the uh $415C, that $72,000 limit. And once again, you can only go to $17,300 uh in excess for that component.
SPEAKER_04As far as uh, you know, little pain points is in in our retirement life here at Southwest, you've got, you know, the 401ks at Schwab, I've got profit sharing accountant and power. Is that even something you could ask in a negotiation to try to get all those things over to Schwab? Or obviously we are able to roll over to Schwab as part of what the contractual gain this last time. Are there any improvements we can pursue along those kinds of uh administrative uh lines, or is that just kind of the company's plan?
SPEAKER_00Great question. So uh as a somewhat new member to the 401k committee, I can tell you with all the emails that we received from the membership, the biggest complaint is the uh interface with MPower uh for the market-based cash balance plan specific, right? So uh people always ask why do we have those over there and then the 401ks at Schwab? Well, Swapa is a plan administrator for the 401k plan, so we have total say on where that is, right? Who the who the uh the vendor is going to be on that. The non qual plans, market-based cash balance plan, profit sharing plan, those are all company maintained plans. So they do have some some say. They do have the say, we'll say, uh, of of where that who what vendor they use. Now, I would love to be able to have the platform and the schwab. Uh, I know that's kind of on our wish list uh to make it there, but um we are unique at SWAPA where we're the plan administrator for the 401k plan. And so that's why we have the leverage to do that. Because Delta, uh uh Delta Airlines, the company is a plan administrator and the plan sponsor. So they receive the monies and they technically administer the plan at Delta. United, same thing. American, same thing. We're we're very unique here. And that's, you know, our the forefathers of uh of SWAPA were really looking ahead of uh the times back in the day when they negotiated the uh plan administration rules to the contract. So kudos to those guys.
SPEAKER_04I'd like to thank Tony, Debbie, Will, and Damien for taking the time to talk with me today about retirements and retirement benefits. To find more information on the topics we discussed today, please visit the benefits and 401k committee pages on swap.org. There you will find informational articles in the pre retirement checklists that were mentioned.