SUMMARY PLAN DESCRIPTION OF THE SOUTHWEST AIRLINES PILOTS RETIREMENT SAVINGS PLAN [2017]

Transcription

1 SUMMARY PLAN DESCRIPTION OF THE SOUTHWEST AIRLINES PILOTS RETIREMENT SAVINGS PLAN [2017] This material was prepared by Southwest Airlines Pilots Association (SWAPA) and is being provided to you at the request of your Plan Sponsor. For additional information concerning this material, please contact SWAPA at SWAPA is not affiliated with Schwab Retirement Plan Services, Inc. or any of its subsidiaries. Neither Schwab Retirement Plan Services, Inc nor any of its subsidiaries have reviewed or approved these materials or are responsible for the materials or for providing updated information with respect to the materials. Date: 1/1/2017

2 TABLE OF CONTENTS 401kACCESS CONTACT INFORMATION... 1 GENERAL INFORMATION... 2 HIGHLIGHTS OF THE SOUTHWEST AIRLINES PILOTS RETIREMENT SAVINGS PLAN... 3 WHEN AM I ELIGIBLE TO PARTICIPATE IN THE PLAN?... 5 WHAT ARE SALARY REDUCTION CONTRIBUTIONS?... 8 WHAT WILL THE EMPLOYER CONTRIBUTE TO THE PLAN? IS THERE A LIMITATION ON AMOUNTS THAT CAN BE ADDED TO MY ACCOUNTS EACH PLAN YEAR? MAY I ROLLOVER OR TRANSFER AMOUNTS FROM ANOTHER PLAN TO THE PLAN? HOW WILL MY FUNDS BE INVESTED? WHEN WILL MY BENEFITS BE PAID? HOW WILL MY BENEFITS BE PAID? MAY I WITHDRAW AMOUNTS FROM THE PLAN WHILE I AM EMPLOYED? MAY I BORROW FROM THE PLAN? IS THERE A CLAIMS PROCEDURE REGARDING PLAN BENEFITS? WHAT ARE THE TAX CONSEQUENCES ASSOCIATED WITH THE PLAN? MAY I OBTAIN ACCOUNT INFORMATION BY PHONE OR INTERNET? WHAT ELSE SHOULD I KNOW? Page Southwest Airlines Pilots -i-

3 401kACCESS CONTACT INFORMATION Use the following phone number or Internet address or phone number to contact Schwab Retirement Plan Services, Inc. to access information regarding your Plan account and to initiate certain changes within your Plan account. Internet Address: workplace.schwab.com/swapa Participant Services: Representatives are available weekdays between 6 a.m. and 10 p.m. Central Time to help you. The international number is These services are referred to in this booklet as 401kaccess. Southwest Airlines Pilots -1-

4 GENERAL INFORMATION This booklet is designed to provide you with a convenient summary and general description of the Southwest Airlines Pilots, as revised and restated through October 1, 2016, sponsored by the Southwest Airlines Pilots Association and Southwest Airlines Co. The Plan was originally established effective January 1, 1986, and it has been amended and restated from time to time, generally, to comply with laws governing employee benefit plans. This booklet describes the Plan based on all Plan provisions that are in effect on January 1, The following sections will answer basic questions that you might have regarding the Plan. You should read all of this summary carefully so that you will understand how the Plan may benefit you, as well as certain exclusions to coverage and limitations on the receipt of benefits which might apply to you. The more you know about the Plan, the better you can take advantage of its benefits. In this plan summary, we will use the term Plan to refer to this Plan and we will use the term Company to refer to Southwest Airlines Co. The term Employer refers to the Company and to the Southwest Airlines Pilots Association. The term Association refers to the Southwest Airlines Pilots Association. The term Administrator refers to the Association or to such other person or committee appointed by the Association to administer the Plan. The Plan operates on a 12-month period basis which begins on January 1 of each year and ends on December 31. This period of operation is referred to as the Plan Year. This booklet is intended only to summarize the major provisions of the Plan. It is not a legal Plan document and it does not imply a guarantee of employment or a continuation of benefits. In addition, this booklet is not intended to answer all of your questions, or to interpret the Plan, but to provide you with a tool to answer some of the more basic questions you might have. Full details of the Plan are contained in the official documents which govern the Plan s operation. Whenever an interpretation of Plan benefits is needed, the actual Plan documents will be used. These documents may be reviewed at the offices of the Administrator, 1450 Empire Central Drive, Brookview Plaza, Suite 737, Dallas, Texas If you need additional information about the Plan, this summary tells you how to obtain that information. Many of the topics discussed in this booklet may not apply to you today, such as how to request a distribution of your account balances in the Plan. Hopefully, that provision as well as others discussed in this booklet will apply to you in the future. Therefore, please keep this booklet in a safe place so it will be available for your use when needed. The Administrator has the sole and absolute discretionary authority to construe the terms of the Plan and to determine eligibility and claims for all benefits. Any determinations or interpretations of the Plan adopted by the Administrator in good faith shall be conclusive and binding on all parties. Southwest Airlines Pilots -2-

5 HIGHLIGHTS OF THE SOUTHWEST AIRLINES PILOTS RETIREMENT SAVINGS PLAN The Plan is a long-term savings plan offering you the convenience of payroll deduction, tax advantages, Employer contributions and investment options. If you are an employee of the Association, you may also be eligible to share in profit sharing contributions to the Plan. The Plan has been carefully designed to help you build a financial reserve by providing you with your own federal tax shelter and giving your money the opportunity for growth. It does this in the following ways: Important tax advantages because you may shelter up to 50% of your compensation by saving in the Plan. Your salary reduction ( pre-tax ) contributions, Employer contributions, and, if applicable, profit sharing contributions made on your behalf, and all investment earnings on those contributions are sheltered from federal income taxes as long as they stay in the Plan. In other words, with the Plan you can save and invest money you would otherwise have paid taxes on. You also may make Roth contributions to a Designated Roth Account, and receive these and earnings thereon tax-free, subject to certain rules. Regular savings The foundation of any sound financial program. The Plan makes saving easy for you through convenient payroll deductions. Employer matching contributions For Plan Years prior to January 1, 2017, the Employer made a matching contribution on your behalf based on a portion of the amount you contributed to the Plan. For Plan Years beginning on or after January 1, 2017, the Employer will no longer make matching contributions to the Plan Employer nonelective contributions For Plan Years beginning on or after January 1, 2017, the Employer will make a nonelective contribution for a Plan Year, which is 100% vested. The Employer s nonelective contributions will be allocated to all eligible employees, regardless of whether they made salary reduction contributions during that Plan Year. Association profit sharing contributions The Association may make a profit sharing contribution for a Plan Year. The Association s profit sharing contributions will be allocated to all eligible employees of the Association, regardless of whether they made salary reduction contributions during that Plan Year. Investment options you may direct the investment of your salary reduction contributions and your Employer matching and nonelective contributions and, if applicable, profit sharing contributions among certain investment funds established by the Plan, or, if desired, through an individual brokerage account. Southwest Airlines Pilots -3-

6 Saving money through the Plan can reduce your tax burden now, as you set aside income for retirement. The main purpose of the Plan is to give eligible employees of the Company and the Association who participate in the Plan an opportunity to save for their future and to provide them with retirement income. The Plan is a salary reduction plan which allows you to elect to reduce your compensation each payroll period and allow it to be invested as directed by you. This type of arrangement is commonly called a 401(k) plan. Your Employer will also make contributions to the Plan so your retirement savings grow much faster. Because contributions and earnings may vary from year to year, the amount of your eventual benefit cannot be predicted. The benefits you receive from the Plan will depend primarily on (1) the amount of your salary reduction contributions, (2) the amount of your Employer contributions, (3) your compensation, (4) the gains or losses incurred by the investment of your accounts, and (5) the number of years you work for your Employer. Generally, your vested Plan benefits are paid when your employment with all Employers and affiliated companies terminates. However, you may have access to your money if you need it before retirement. You may borrow or, in certain circumstances, withdraw all or a portion of your accounts, subject to Plan rules. For your convenience, the Plan contains a feature referred to in this booklet as 401kaccess which allows you to obtain information about your Plan account, change salary reduction contribution elections, change beneficiary designations, change investments, obtain information regarding investment funds, including prospectuses, and initiate loans, withdrawals and distributions following termination of employment for any reason. This feature may be accessed through the use of a personal identification number, during either a call to the toll-free telephone number or a visit to the Plan s Internet website. Please see the section of this booklet entitled MAY I OBTAIN ACCOUNT INFORMATION BY PHONE OR INTERNET? below for additional information on this feature. Please be sure to read the following pages for details on how the Plan can work for you. Southwest Airlines Pilots -4-

7 WHEN AM I ELIGIBLE TO PARTICIPATE IN THE PLAN? You can elect to participate in the Plan as soon as you are eligible. Once you are eligible, it s easy to enroll. Who is Eligible? Any employee who is a pilot employed by the Company and who is a member of the collective bargaining unit represented by the Association and all employees of the Association are eligible to participate in the Plan for purposes of nonelective contributions as of his or her date of hire with the Employer. For all purposes, other than nonelective contributions, any employee who is a pilot employed by the Company and who is a member of the collective bargaining unit represented by the Association and all employees of the Association are eligible to defer in the Plan on the first day of the calendar quarter coinciding with or immediately following his or her date of hire with the Employer. The Administrator will give you written notice of your eligibility to participate in the Plan prior to the date on which you first become eligible. Who is not Eligible? Leased employees and non-resident aliens with no U.S. source income are not eligible to participate in the Plan, nor are residents of Puerto Rico. In addition, the term employee does not include any individual who by contract is not an employee of an Employer, regardless of whether such individual is on the Employer s payroll for federal income tax withholding purposes. What if You are Rehired or Transferred? If your employment with your Employer terminates prior to completing the eligibility requirements, you will be eligible to become a participant in the Plan when you return to work for an Employer after you complete the eligibility requirements. If after becoming a participant your employment with your Employer terminates and you are later reemployed by an Employer and are classified as an eligible employee, you will be eligible to participate in the Plan immediately after your completion of one Hour of Service. If you are a participant and you become ineligible to participate because your employment is reclassified, you will again become eligible to participate if you are subsequently classified as an eligible employee upon completion of one Hour of Service. An Hour of Service is an hour for which you have a right to be paid and includes vacation, sick leave, and any hours for which back pay is due. How do I Enroll in the Plan? To enroll in the Plan, you must enroll online to elect your salary reduction contribution amount and investment choices, as well as to designate your beneficiary to receive benefits payable in the event of your death. You need to complete these elections before you can begin making salary reduction contributions to your Plan account. Southwest Airlines Pilots -5-

8 You may begin making salary reduction contributions as of the first payroll period following or including the first day of the month after you become eligible to participate in the Plan, or as of any subsequent payroll period, by enrolling online. Your election will apply to all your compensation, including any bonuses or salary increases, you receive after you elect to have salary reduction contributions begin; provided that in no event may salary reduction contributions be made on your behalf to the Plan with respect to any portion of your compensation prior to the date you perform the services for which you would receive that compensation. For the pilots, this means that the salary reduction contributions will begin being withheld from your compensation on the 5th day of the month if the election is received by the 24th day of the preceding month and will begin on the 20th day of the month if the election is received by the 9th day of the month. For the employees of the Association, this means that the salary reduction contributions will begin being withheld from your compensation on the 1st day of the month if the election is received by the 15th day of the preceding month and will begin on the 15th day of the month if the election is received by the 1st day of the month. When you enroll in the Plan, you will be asked to choose: The percentage of your compensation you want to contribute (a whole percentage up to 50%), or such lesser percentage established by the Administrator, if you are a highly compensated participant; How your salary reduction contributions and the Employer contributions made on your behalf will be invested; and Who should receive your Plan benefits if you die. Naming a Beneficiary If you die prior to receiving your benefits under the Plan, the vested balance of your accounts will be paid to your beneficiary as soon as practicable following your death. Accordingly, when you enroll in the Plan, you will be asked to name a beneficiary someone who receives your Plan benefits if you die. If you are married and you want to name someone other than your spouse as beneficiary for a part or all of your Plan benefits, your spouse must give his or her consent in writing in the presence of a notary public or a Plan representative on a form obtained by contacting 401kaccess. This consent must acknowledge the effect of this decision on your spouse s right to benefits under the Plan and also acknowledge the other beneficiary named. If you ever decide to change your beneficiary, your spouse must give a new written consent, unless your spouse will be the new beneficiary. If you marry after you have made a written beneficiary designation or if you divorce, your original beneficiary designation will become invalid. Please remember to keep your beneficiary designation current and to complete a new beneficiary designation form if you get married or divorced. Southwest Airlines Pilots -6-

9 If you have not named a beneficiary, or your named beneficiary dies before you do, payment under the Plan automatically will be made to your spouse, or if you do not have a surviving spouse, to other beneficiaries specified in the Plan. Plan Administrative Costs The Plan permits the payment of Plan related expenses to be made from the Plan assets. If the Company does not pay these expenses from its own assets, then the expenses paid using the Plan s assets will generally be allocated among the accounts of all participants in the Plan. However, there are certain expenses that will be paid just from your account. These are expenses that are specifically incurred by, or attributable to, you. You previously have been advised of certain fees that are paid from your Plan accounts, such as loan processing fees. Important Reminder Keep in mind that participation in the Plan is entirely voluntary. You may join the Plan when you first become eligible or sometime later. But remember, the sooner you enroll, the sooner important tax advantages and convenient payroll savings will begin. Southwest Airlines Pilots -7-

10 WHAT ARE SALARY REDUCTION CONTRIBUTIONS? You can elect to save a portion of your compensation each Plan Year by contributing to the Plan on a pre-tax or after-tax Roth basis through convenient payroll deductions. Your Pre-Tax Salary Reduction Contributions If you elect to participate in the Plan, you can contribute, by payroll deduction, any whole percentage of your compensation each payroll period up to 50% (or such lesser percentage established by the Administrator, if you are a highly compensated participant). Your election will apply to all of your compensation, including increases to such compensation; provided that in no event may salary reduction contributions be made on your behalf to the Plan with respect to any portion of your compensation prior to the date you perform the services for which you would receive that compensation. If your salary reduction contributions are made on a pre-tax basis, you will not be required to pay any income taxes on these amounts until they are distributed to you from the Plan. In effect, your salary reduction contributions reduce the gross income shown on your federal W-2 form. You pay federal income taxes on the remaining portion of your compensation, not on your total compensation. As a result, you pay less in federal income taxes and, where allowed, city, state and local income taxes. You continue to pay Social Security taxes on the full amount of your pre- tax earnings, including your salary reduction contributions to the Plan, so that your Social Security benefit will not be reduced when you retire. Your pretax salary reduction contributions, as well as the earnings from the investment of those contributions, are not taxed until you take them out of the Plan. Your Employer will make the contributions required by your election within an administratively reasonable period of time after withholding the corresponding compensation from your paycheck. The Administrator maintains records identifying the salary reduction contributions you have made to the Plan, as well as the gains or losses from the investment of these contributions. To do this, a bookkeeping account called a Participant s Elective Account is maintained in your name. Your salary reduction contributions are deposited in the Plan s trust as soon as possible following each payroll period. You are always 100% vested in your Participant s Elective Account. Are There Limitations on the Amount of My Pre-Tax Salary Reduction Contributions? Yes, there are several different limitations. First, the maximum amount you may elect to defer for the Plan Year is 50% (or such lesser percentage established by the Administrator, if you are a highly compensated participant) of your compensation. You must elect to defer in whole percentages and the minimum must equal at least 1% of your compensation. Also, a special rule under the Internal Revenue Code of 1986, as amended (the Internal Revenue Code ), requires that the compensation of each participant in excess of $270,000 (for 2017) not be considered under the Plan for purposes of determining contributions and the allocation of Employer contributions. That dollar limitation increases in future Plan Years as determined by the Internal Revenue Service. You will be notified of any increases. Finally, your salary reduction contributions to the Plan combined with salary reduction contributions to any other plan in which you participate (whether or not maintained by your Employer) may not exceed a specified dollar Southwest Airlines Pilots -8-

11 limit in any calendar year determined by the Internal Revenue Service (adjusted annually for cost of living). The dollar amount for 2017 is $18,000. That dollar amount increases in future calendar years as determined by the Internal Revenue Service. The Administrator will advise you of changes to this amount. If pre-tax contributions are made on your behalf to another plan, you are required to inform the Administrator if your total pre-tax contributions to all plans during a calendar year exceed the applicable dollar limit for the year. If your total pre-tax contributions to all plans during a calendar year exceed the annual dollar limitation, you must decide by March 1 of the following calendar year which plan you will treat the excess amount to have been contributed and notify the administrator of that plan. Then the administrator of that plan must distribute that excess amount, plus the earnings on such amount (determined in accordance with guidance provided by the Internal Revenue Service), to you no later than the following April 15. You must include the total amount distributed in your taxable income for the preceding calendar year, i.e., the year it was contributed on your behalf to the applicable plan. If this does not occur, severe penalties apply. In addition to the annual dollar limitation (which may be adjusted by the Internal Revenue Service), the amount you can elect to have contributed to the Plan during the Plan Year may also be limited by law based on the amount other participants elect to contribute during the Plan Year. These rules are very complicated. The Administrator will keep you advised about the maximum amount you can elect to have contributed from time to time and may make adjustments to your contributions during a Plan Year or may return a portion of your contributions (adjusted for earnings as determined in accordance with guidance provided by the Internal Revenue Service) to you in order to assure compliance with such rules. The Plan has established a safe harbor to satisfy these limits. Employees will receive a separate notice about their safe harbor rights and responsibilities each year. When May I Change or Stop My Pre-Tax Salary Reduction Contributions? You have the flexibility to change your salary reduction contribution decision as your needs change: Except as provided in the next subparagraph, if you are a pilot, you may amend your salary reduction contribution election to increase, decrease or stop, on a prospective basis, your pre-tax contributions to the Plan by giving notice to the Administrator on or before the 9th day of the month to be effective on the 20th day of the month, and by the 24th day of the month to be effective on the 5th day of the following month. You may not, however, amend your salary reduction contribution election during a Plan Year to increase, decrease or stop your pre-tax contributions to the Plan for that Plan Year if you are a pilot and elected to participate in the Southwest Airlines Co Deferred Compensation Plan for Pilots for the coinciding plan year. If you are an employee of the Association, you may amend your salary reduction contribution election to increase, decrease or stop, on a prospective basis, your pretax contributions to the Plan by giving to the Administrator on or before the 1st day of Southwest Airlines Pilots -9-

12 the month to be effective on the 15th day of the month, and by the 15th day of the month to be effective on the 1st day of the following month. Your salary reduction contribution election or change to your salary reduction contribution election will remain in effect until further amended by you in accordance with the rules discussed above, unless the Administrator makes adjustments to such elections (or returns contributions to you) in order to comply with the limits imposed by the law. If you amend your salary reduction contribution election to stop your pre-tax contributions, you may make a new salary reduction contribution election to again have pre-tax contributions made by the same deadlines explained above. Qualified Military Service Special rules apply regarding salary reduction contributions if you serve in the uniformed services and your service constitutes qualified military service. The Administrator can help you determine if your uniformed service constitutes qualified military service. Once your qualified military service has been completed, you may elect to commence salary reduction contributions in accordance with the rules described in How do I Enroll in the Plan? under WHEN AM I ELIGIBLE TO PARTICIPATE IN THE PLAN? above. You may also elect to make additional salary reduction contributions to the Plan during the period that begins on the date you timely return to employment after your qualified military service ends and continues for a period of time equal to the lesser of (i) three times your period of qualified military service and (ii) five years. The amount of additional salary reduction contributions you may elect to make to the Plan during this period is equal to the excess of (i) the maximum amount of salary reduction contributions that you would have been permitted to make to the Plan in accordance with the applicable limitations discussed in Are There Limitations on the Amount of My Salary Reduction Contributions? above during your period of qualified military service if you had continued to be employed by an Employer during such period of qualified military service over (ii) the actual amount of your salary reduction contributions made for that period described in clause (i). Are Catch-Up Contributions Allowed? Yes, in order to encourage older participants who may have missed opportunities in earlier years to save for retirement, the otherwise applicable dollar limit for a calendar year on salary reduction contributions under Are There Limitations on the Amount of My Salary Reduction Contributions? above, i.e., $18,000 for 2017, is increased for participants who have attained age 50 by the end of the calendar year. Under this special rule, the additional amount of catch-up contributions that may be made by an older participant for a calendar year is the lesser of (i) a specified dollar amount or (ii) that participant s compensation for the year reduced by his or her other salary reduction contributions for that year. The specified dollar amount is $6,000 for 2017 subject to further adjustment by the Internal Revenue Service for inflation for calendar years after Catch-up contributions are not taken into account in applying any contribution limits under the Plan. Southwest Airlines Pilots -10-

13 If you qualify to make catch-up contributions for a calendar year they will be automatically deducted after you attain the contribution limit as long as you maintain a salary reduction election. May I Make Roth Contributions to the Plan? Yes, you can elect to make Roth contributions to a Designated Roth Account. You pay federal income taxes and state income taxes on Compensation you contribute to the Plan as Roth contributions for the year in which you make the contribution. However, your Roth contributions are not taxable when they are distributed from the Plan. In addition, if certain conditions are satisfied, the earnings on your Roth contributions are also not taxable when distributed from the Plan. You may elect to convert any part of your Account that is not already a Roth contribution to a Roth contribution. Your converted Roth contributions and, if certain conditions are satisfied, the earnings on those contributions, are not taxable when distributed from the Plan. Please Note: Once any non-roth part of your Account is converted to a Roth contribution, you may not convert these monies back to non-roth. Southwest Airlines Pilots -11-

14 WHAT WILL THE EMPLOYER CONTRIBUTE TO THE PLAN? The Employer will make a nonelective contribution and the Association may decide for any Plan Year to make a profit sharing contribution for its eligible employees. Matching Contributions Prior to January 1, 2017, your Employer encouraged your participation in the Plan by making matching contributions. If you made pre-tax or Roth contributions for a Plan Year, your Employer added a matching contribution to your Account. Effective January 1, 2017, your Employer no longer matched your pre-tax and Roth contributions to the Plan. Nonelective Contributions Each Plan Year, eligible employees of an Employer will receive a nonelective contribution that is 100% vested. An Employer s nonelective contribution for a Plan Year will be allocated among all eligible participants without regard to whether any such participant elected to make salary reduction contributions to the Plan for the Plan Year. Each eligible participant s nonelective contribution will be a percentage of his or her Compensation for the Plan Year determined in accordance with the following: Plan Year Percentage of Compensation % % 2019 and after 15.0% Your Employer will provide notice each year of its obligation to make nonelective contributions to your Account and of the other benefits provided under the Plan. If your Employer makes nonelective contributions to the Accounts of all eligible employees and also provides the notice described above, it does not have to apply certain discrimination rules that could limit the pre-tax salary reduction contributions made by highly compensated participants. Profit Sharing Contributions by the Association Eligible employees of the Association will also receive an additional profit sharing contribution to the Plan. The Association intends that this profit sharing contribution will be equal, as a percentage of compensation, to the profit sharing contribution made by the Company on behalf of the pilots to the Company s profit sharing plan. In order to be eligible to share in the profit sharing contributions made to the Plan by the Association for a Plan Year, you must either (i) be employed by the Association on the last day of that Plan Year and have received credit for at least 1,000 Hours of Service during that Plan Year, or (ii) have incurred a Southwest Airlines Pilots -12-

15 termination of employment with the Association during that Plan Year due to normal retirement (termination on or after reaching normal retirement age), total and permanent disability or death. The Association s profit sharing contribution for a Plan Year, if any, will be allocated among the eligible participants pro-rata based on their compensation for that Plan Year and without regard to whether any such participant elected to make salary reduction contributions to the Plan for that Plan Year. An Hour of Service is an hour for which you have a right to be paid and includes vacation, sick leave, and any hours for which back pay is due. Compensation All contributions are calculated using compensation (up to the dollar limit set each Plan Year by the Internal Revenue Service). Compensation includes amounts paid to you as an employee during the Plan Year while you are a participant, including any amounts paid as bonuses or overtime, taxable expense allowances and non-taxable contributions you make to a cafeteria plan (section 125 plan) or a qualified transportation benefit plan. Compensation excludes expense reimbursements, non-taxable expense allowances provided by your Employer, contributions made by your Employer under the Plan or other qualified retirement plan or to provide health insurance, a Company-provided qualified transportation fringe benefit, amounts realized or recognized when restricted stock or property becomes vested, and amounts paid by the Company to employees which would have been contributions to the Southwest Airlines Co. Profit Sharing Plan except that such amounts exceed the legal limitations on contributions imposed by the Internal Revenue Code, and if you are a pilot, amounts, if any, deferred by you pursuant to the Southwest Airlines Co. Deferred Compensation Plan for Pilots. Qualified Military Service If your Employer makes a nonelective contribution to the Plan while you are away performing qualified military service, for purposes of allocating the nonelective contributions as described in Nonelective Contributions above, you will be considered to be employed by the Employer during your period of qualified military service. If you timely return to employment with the Employer after your qualified military service ends, the Employer will make the aggregate amount of the nonelective contributions to your Account no later than the date required by regulations of the Department of Labor. If you are an employee of the Association and the Association makes a profit sharing contribution to the Plan while you are away performing qualified military service, for purposes of allocating the profit sharing contribution as described in Profit Sharing Contributions by the Association above, you will be considered to be employed by the Association during your period of qualified military service. If you timely return to employment with the Association after your qualified military service ends, the Association will make the aggregate amount of the profit sharing contributions to your Account no later than the date required by regulations of the Department of Labor. Southwest Airlines Pilots -13-

16 To Which Account are Employer Contributions Allocated? The Trustee maintains for you a bookkeeping account called a Participant s Account to record your share of the Employer contributions that are allocated to you, as well as the gains or losses from the investment of your account. When Will My Participant s Account be Vested? You are always 100% vested in your Participant s Account from the date of your participation in the Plan. Are There Limitations on Employer Contributions? The Company cannot generally obtain a tax deduction for annual contributions for a year which exceed 25% of the total compensation of all employees of the Company who participate in the Plan and does not intend to contribute more than that amount. Also, the tax laws require that for purposes of determining your Employer s contributions to the Plan, the compensation of any participant who earns more than $270,000 during the 2017 Plan Year must be limited to $270,000. That dollar limitation increases in future Plan Years as determined by the Internal Revenue Service. You will be notified of any increases. Southwest Airlines Pilots -14-

17 IS THERE A LIMITATION ON AMOUNTS THAT CAN BE ADDED TO MY ACCOUNTS EACH PLAN YEAR? There is an overall limit under the tax laws on amounts that may be allocated to your accounts each Plan Year. In no event may Employer contributions (including your salary reduction contributions, nonelective contributions, and, if you are a pilot, profit sharing contributions made by the Company on your behalf to the Company s profit sharing plan) be allocated to your accounts for a Plan Year in an amount which would exceed the lesser of 100% of your compensation (including any salary reduction contributions you elect to make under the Plan or to any other tax-qualified benefit plan of your Employer, such as a cafeteria plan, and any qualified transportation fringe benefit) for the Plan Year or $54,000. That dollar limitation increases in future Plan Years as determined by the Internal Revenue Service. You will be notified of any increases. Catch-up contributions are in addition to this limit. Southwest Airlines Pilots -15-

18 MAY I ROLLOVER OR TRANSFER AMOUNTS FROM ANOTHER PLAN TO THE PLAN? If you receive a distribution from another tax-qualified retirement plan, you may be permitted to contribute that amount to the Plan. This is known as a rollover contribution. A transfer contribution may also be made on your behalf from another tax-qualified retirement plan. If you receive an eligible rollover distribution, as described in the Internal Revenue Code, from another tax-qualified retirement plan, you may be permitted to deposit that money, or you may be permitted to ask the trustee of the other plan to roll over that money directly, into a rollover account in the Plan. An eligible rollover distribution also includes a distribution you receive from an annuity contract described in Section 403(b) of the Internal Revenue Code and an eligible plan under Section 457 of the Internal Revenue Code maintained by a state, political subdivision of a state or any agency or instrumentality of a state or political subdivision of state. That way you can postpone taxes on the money you receive and allow it to continue to earn tax-deferred income at the same time. In addition, by electing to roll over the distribution, you may avoid the 20% mandatory federal income tax withholding requirement generally payable on the taxable portion of the distribution, and the 10% tax penalty, if applicable. Unless you are rolling over a designated Roth account from another plan to your Designated Roth Account in this Plan, you may not roll over any amounts representing contributions you made to the other plan on an after-tax basis, but the earnings on such amounts may be rolled over. You also may not roll over any amounts that you have received in a hardship withdrawal from another plan, including any earnings on such amounts that are included in that hardship withdrawal. In addition, if you are a former participant no longer working for an Employer but continue to have a balance in your account under the Plan, you may make a rollover contribution from another tax-qualified retirement plan (including the Company s profit sharing plan) to the Plan. Special rules and time limits are imposed by the federal government on rollovers. If you are interested in making a rollover to the Plan, contact the Administrator to see if it is allowed. If the money that is in your account in another tax-qualified retirement plan is transferred directly to the Plan on your behalf, this is called a transfer contribution. If you make such a rollover contribution or if a transfer contribution is made on your behalf, a Participant s Rollover Account will be established for you, even if you are not yet a participant, and you must submit an investment election form to the Administrator directing the investment choices for your rollover or transfer contribution. If you fail to submit an investment election form, your Participant s Rollover Account will automatically be invested in accordance with the default investment procedures described under HOW WILL MY FUNDS BE INVESTED? below. You are always 100% vested in your Participant s Rollover Account. Southwest Airlines Pilots -16-

19 In no event will the existence of a rollover or transfer contribution held for the benefit of an employee be construed to entitle the employee to any amount in the Plan to which such employee is not otherwise entitled under the Plan. Southwest Airlines Pilots -17-

20 HOW WILL MY FUNDS BE INVESTED? The Plan permits you to direct the investment of your salary reduction contributions and Employer matching and nonelective contributions and, if applicable, profit sharing contributions allocated to you, and your rollover or transfer contributions into certain funds in 1% increments. The Association is responsible for appointing the Trustee, the recordkeeper, and the investment manager or management company. The money you and your Employer contribute is held by the Trustee of the trust established pursuant to the Plan. The Trustee is responsible for handling the assets of the Plan and investing these assets in accordance with your directions (or the default investment procedures) and the directions of the Association. The Trustee is Charles Schwab Bank. (See Plan Trustee under WHAT ELSE SHOULD I KNOW? below.) The value of your Plan accounts represents the value of all contributions made or transferred to the Plan on your behalf adjusted for investment gains or losses and withdrawals and distributions from your accounts. The Trustee is not required to and will not carry out participant directions which (i) would conflict with the provisions of the Plan or the trust, the Employee Retirement Income Security Act of 1974, as amended ( ERISA ), or other governing laws, the applicable investment product prospectuses and/or other governing instruments, and/or any rules, policies or procedures established by the Administrator, (ii) would jeopardize the tax-qualified status of the Plan, (iii) would result in a prohibited transaction, or (iv) would generate income that would be taxable to the Plan. Your Investment Options Currently the Plan permits you to direct the investment of your salary reduction contributions, rollover contributions, if any, transfer contributions, if any, and your Employer s matching and nonelective contributions and, if applicable, profit sharing contributions into the investment funds (the Funds ) described below selected by the Association or the Administrator and maintained by the Trustee. The Association or the Administrator may, from time to time, increase or decrease the number of Funds and may change the current Funds. You will be notified regarding any changes to the investment Funds. The Funds range from a relatively low risk Fund (generally with lower returns), to a higher risk equity Fund (with a potential for higher returns). The Funds are described in detail within individual Fund Profiles distributed to you periodically or available at 401kaccess. If you would like more information about any of the Funds offered under the Plan, please contact the Administrator or 401kaccess. The Funds are described in detail at 401kaccess. Please see the section of this booklet entitled MAY I OBTAIN ACCOUNT INFORMATION BY PHONE OR INTERNET? below. Self-directed Brokerage Account In addition to the investment Fund choices offered by the Plan, you may transfer up to 95% of your accounts to a self-directed brokerage account with respect to which you may direct Southwest Airlines Pilots -18-

21 investments in other than the investment Funds selected by the Association. You can also direct that up to 95% of your future contributions be deposited directly into a self-directed brokerage account. This type of account is offered through Charles Schwab & Co., Inc. ( Schwab ). If you make this election, you can invest such account in any publicly-traded stocks (other than Southwest Airlines Co. stock) or bonds and mutual funds. You may not, however, invest in publicly-traded limited partnerships. All investments made by you in such account must conform to the other restrictions that the Association may from time to time impose on selfdirected brokerage accounts in a uniform and nondiscriminatory basis. To get more information, contact 401kaccess. Transfers to a self- directed brokerage account may be initiated by accessing 401kaccess by using either the toll-free telephone number or the Internet website for the Plan, as explained in MAY I OBTAIN ACCOUNT INFORMATION BY PHONE OR INTERNET? below. Once you have established a self-directed brokerage account, trades in that account are made through Schwab. Your Investment Elections When you complete your enrollment forms, you decide what percentage of your accounts will go into each Fund or a self-directed brokerage account. Contributions to the investment Funds must be invested in multiples of 1%. Failure to Make an Investment Election If you fail to direct the investment of your accounts, the entire balance of your accounts will be invested in the particular Fund or in such other default investment Fund (or funds) as may be designated by the Administrator from time to time for such purpose, including Funds which may constitute a qualified default investment alternative under the applicable Department of Labor regulations. At such time or times required by Section 404(c) of ERISA, and the Department of Labor regulations promulgated thereunder, the Administrator shall provide a notice to you of your rights and obligations under the default investment procedures which will explain (i) your rights under the Plan to specifically elect to exercise control over the investment of your Plan accounts, and (ii) how your accounts will be invested in the absence of your affirmative investment election. Making Your Investment Elections When you enroll in the Plan, you will be asked to indicate how you want your salary reduction contributions, Employer nonelective contributions, if applicable, profit sharing contributions, and, if applicable, rollover contributions and transfer contributions invested. Before you make your investment decision, you should carefully consider your investment goals. The Association or the Administrator will make available information which summarizes the general investment goals and the past investment performance of the Funds as they exist from time to time. In addition, you may request from the Administrator or 401kaccess as explained in MAY I OBTAIN ACCOUNT INFORMATION BY PHONE OR INTERNET? below, or the Trustee, copies of prospectuses, financial statements or any other materials relating to the Funds that are offered by the Plan, to the extent such information is provided to the Plan, and a Southwest Airlines Pilots -19-

22 description of the annual operating expenses of each Fund, such as investment management fees, administrative fees and transaction costs. You will also receive by separate written documents (or by posting on the Internet site or other electronic means) the names of any investment managers for the investment Funds and a description of any transaction fees and expenses that affect your accounts. The Plan is intended to constitute a plan described in Section 404(c) of ERISA and Title 29 of the Code of Federal Regulations section c-1. As a result, the fiduciaries of the Plan may be relieved of liability for any losses which are the direct and necessary result of investment instructions given by you or your beneficiary, as well as the default investment Fund that becomes applicable to you because you fail to direct the investment of your Plan accounts. You may want to seek independent investment advice. Remember the investment decision is yours. No employee or officer of the Company or the Association is authorized to give any investment advice. You should consider all Funds carefully before making your investment election or, if applicable, determining to permit your Plan accounts to continue to be invested in the default investment Fund due to your failure to make an affirmative investment election. You also should remember that all investments have some element of risk. Therefore, you should select your investments based on your own financial and retirement needs. In addition, it is important to remember that, like the stock and bond markets, stock and bond investments can go down as well as up. If that should happen, as it probably will from time to time, the dollar value of amounts invested in stocks or bonds will change. The Association has entered into an agreement with Morningstar Associates, LLC ( Morningstar ) pursuant to which you may individually enter into a contract with Morningstar for its investment advisory services through Morningstar Retirement ManagerSM. If you elect to contract with Morningstar for advisory services, you will receive a personalized retirement investment strategy consisting of recommendations for (i) portfolio asset mix based on risk tolerance, (ii) retirement goal targets, (iii) savings rate to help meet those goals, and (iv) investment selection. The Plan has established procedures to assure confidentiality with respect to your investment decisions, and the Administrator is responsible for monitoring compliance with those procedures. You should note that the Administrator and the Trustee may refuse to abide by your investment directions if it is determined that doing so would violate ERISA or the terms of the Plan. If this occurs, you will be notified and given the opportunity to submit revised investment directions. Investment Changes You can change your investment decision as often as you wish. A change will be effective as of the beginning of the next business day the New York Stock Exchange is open for trading ( Valuation Date ). The change (other than a change in a self-directed brokerage account) is made by contacting 401kaccess as explained in MAY I OBTAIN ACCOUNT INFORMATION BY PHONE OR INTERNET? below. Written confirmation of your changes will be sent to you. Southwest Airlines Pilots -20-

23 You can change the way your future contributions will be invested in the Plan; You can reallocate the way your existing account balances are invested by transferring money from one investment Fund to another; and/or You can direct that up to 95% of your account be transferred to a self-directed brokerage account. A change of investments for a self-directed brokerage account is made through Schwab. The Administrator will provide to you the details on the procedures for the self-directed brokerage account should you choose to establish one. The changes are still subject to the restrictions described under Self-directed Brokerage Account above. Valuation Dates Your accounts are valued as of each business day the New York Stock Exchange is open for trading during the Plan Year. These dates are referred to as Valuation Dates. The value of your Plan accounts means your share of the value (as of a Valuation Date) of all Funds in which your contributions are invested. The value of a Fund means the current market value of the assets of the Fund. As of the close of business each Valuation Date, the Plan s recordkeeper will determine the value of each investment Fund or self-directed brokerage account under the Plan and will make appropriate entries to your Plan accounts to reflect the investment performance of the investment Funds in which you have chosen to invest. Following the end of each calendar quarter during the Plan Year, you will receive a Plan statement updating you on any activity in your accounts since the last statement and the value of each Fund in which your accounts are invested. These quarterly statements will also include (i) an explanation of any limitations or restrictions on your right to direct an investment, (ii) an explanation of the importance, for your long-term retirement security, of a well-balanced and diversified investment portfolio, including a statement of the risk that holding more than 20 percent of a portfolio in the security of one entity may not be adequately diversified, and (iii) a notice directing you to the Internet website of the Department of Labor for sources of information on individual investing and diversification. The Administrator also will periodically provide you a separate summary of Fund performances. In addition, you may review your Plan account balances at any time by contacting 401kaccess and accessing your account information. Please see the section of this booklet entitled MAY I OBTAIN ACCOUNT INFORMATION BY PHONE OR INTERNET? below. Southwest Airlines Pilots -21-