Southwest Airlines 2008 Annual Report Download - page 89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company also sponsors Employee savings
plans under section 401(k) of the Internal Revenue
Code, which include Company matching
contributions. The 401(k) plans cover substantially
all Employees. Contributions under all defined
contribution plans are primarily based on Employee
compensation and performance of the Company.
Company contributions to all retirement plans
expensed in 2008, 2007, and 2006 were $243 million,
$279 million, and $301 million, respectively.
Postretirement benefit plans
The Company provides postretirement benefits to
qualified retirees in the form of medical and dental
coverage. Employees must meet minimum levels of
service and age requirements as set forth by the
Company, or as specified in collective bargaining
agreements with specific workgroups. Employees
meeting these requirements, as defined, may use
accrued unused sick time to pay for medical and dental
premiums from the age of retirement until age 65.
The following table shows the change in the
Company’s accumulated postretirement benefit
obligation (APBO) for the years ended December 31,
2008 and 2007:
2008 2007
(In millions)
APBO at beginning of period ....... $88 $111
Service cost ................... 14 16
Interest cost ................... 56
Benefits paid .................. (3) (6)
Actuarial (gain) loss ............ (3) (39)
APBO at end of period ............ $101 $88
The assumed healthcare cost trend rates have a
significant effect on the amounts reported for the
Company’s plan. A one-percent change in all
healthcare cost trend rates used in measuring the
APBO at December 31, 2008, would have the
following effects:
1% increase 1% decrease
(In millions)
Increase (decrease) in total
service and interest costs . . $2 $(2)
Increase (decrease) in the
APBO ................. $8 $(7)
The Company’s plans are unfunded, and
benefits are paid as they become due. For 2008, both
benefits paid and Company contributions to the plans
were each $3 million. For 2007, both benefits paid
and Company contributions to the plans were each $6
million. Estimated future benefit payments expected
to be paid for each of the next five years are $7
million in 2009, $8 million in 2010, $9 million in
2011, $10 million in 2012, $11 million in 2013, and
$95 million for the next five years thereafter.
On December 31, 2006, the Company adopted
the recognition and disclosure provisions of SFAS
158, “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans” (SFAS
158.) SFAS 158 requires the Company to recognize
the funded status (i.e., the difference between the fair
value of plan assets and the projected benefit
obligations) of its benefit plans in the Consolidated
Balance Sheet, with a corresponding adjustment to
“Accumulated other comprehensive income (loss),”
net of tax. The following table reconciles the funded
status of the plan to the Company’s accrued
postretirement benefit cost recognized in “Other
deferred liabilities” on the Company’s Consolidated
Balance Sheet at December 31, 2008 and 2007.
2008 2007
(In millions)
Funded status ................... $(101) $(88)
Unrecognized net actuarial (gain)
loss ......................... (32) (31)
Unrecognized prior service cost ..... 13
Accumulated other comprehensive
income (loss) .................. 31 28
Cost recognized on Consolidated
Balance Sheet ................. $(101) $(88)
During 2007, the Company recorded a $31
million actuarial gain as a decrease to the recognized
obligation with the offset to “Accumulated other
comprehensive income (loss).” This actuarial gain is
included above and resulted from Congress’ passage
of a law to increase the mandatory retirement age for
U.S. commercial airline pilots from 60 to 65,
effective immediately. Because the Company
projects that some of its Pilots will now work past
age 60, this assumption resulted in a decrease to the
Company’s projected future postretirement
obligation.
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