EMPLOYEE RETIREMENT PLANS

12 Months Ended

Dec. 31, 2019

Defined Contribution Plans

Southwest has defined contribution plans covering substantially all of its Employees. Contributions under all defined contribution plans are primarily based on Employee compensation and performance of the Company. The Company sponsors Employee savings plans under section 401(k) of the Internal Revenue Code of 1986, as amended. The Southwest Airlines Co. 401(k) Plan includes Company matching contributions and the Southwest Airlines Pilots Retirement Saving Plan has non-elective Company contributions. In addition, the Southwest Airlines Co. ProfitSharing

Plan (ProfitSharing Plan) is a defined contribution plan to which the Company may contribute a percentage of its eligible pre-tax profits, as defined, on an annual basis. No Employee contributions to the ProfitSharing Plan are allowed.

Amounts associated with the Company's defined contribution plans expensed in 2019, 2018, and 2017, reflected as a component of Salaries, wages, and benefits, were $1.2 billion, $1.0 billion, and $1.0 billion, 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 accumulated postretirement benefit obligation ("APBO") for the years ended December 31, 2019 and 2018:



(in millions)	2019			2018
APBO at beginning of period	$	232		$	275
Service cost	17			18
Interest cost	10			9
Benefits paid	(9		)	(5		)
Actuarial (gain)/loss	38			(69		)
Plan amendments	—			4
APBO at end of period	$	288		$	232

During 2019, the Company recorded a $38 million actuarial loss as an increase to the APBO with an offset to AOCI. This actuarial loss is reflected above and resulted from changes in certain key assumptions used to determine the Company’s year-end obligation. The assumption change that resulted in the largest portion of the actuarial loss was the change in the discount rate used.

All plans are unfunded, and benefits are paid as they become due. Estimated future benefit payments expected to be paid are $9 million in 2020, $10 million in 2021, $12 million in 2022, $13 million in 2023, $15 million in 2024, and $107 million for the next five years thereafter.

The funded status (the difference between the fair value of plan assets and the projected benefit obligations) of the Company’s consolidated benefit plans are recognized in the Consolidated Balance Sheet, with a corresponding adjustment to AOCI. The following table reconciles the funded status of the plans to the accrued postretirement benefit cost recognized in Other non-current liabilities on the Company’s Consolidated Balance Sheet at December 31, 2019 and 2018.



(in millions)	2019			2018
Funded status	$	(288	)	$	(232	)
Unrecognized net actuarial gain	(24		)	(64		)
Unrecognized prior service cost	4			5
Accumulated other comprehensive income	20			59
Cost recognized on Consolidated Balance Sheet	$	(288	)	$	(232	)

The consolidated periodic postretirement benefit cost for the years ended December 31, 2019, 2018, and 2017, included the following:



(in millions)	2019			2018		2017
Service cost	$	17		$	18	$	18
Interest cost	10			9		11
Amortization of prior service cost	1			3		3
Amortization of net gain	(2		)	—		—
Net periodic postretirement benefit cost	$	26		$	30	$	32

Service cost is recognized within Salaries, wages, and benefits expense, and all other costs are recognized in Other (gains) losses, net in the Consolidated Statement of Income. Unrecognized prior service cost is expensed using a straight-line amortization of the cost over the average future service of Employees expected to receive benefits under the plans. Actuarial gains are amortized utilizing the minimum amortization method. The following actuarial assumptions were used to account for the Company’s postretirement benefit plans at December 31, 2019, 2018, and 2017:



	2019		2018		2017
Weighted-average discount rate	3.30	%	4.35	%	3.65	%
Assumed healthcare cost trend rate (a)	7.13	%	7.13	%	7.08	%


(a)	The assumed healthcare cost trend rate is expected to be 6.79% for 2020, then decline gradually to 5.19% by 2027 and remain level thereafter.

The selection of a discount rate is made annually and is selected by the Company based upon comparison of the expected future cash flows associated with the Company’s future payments under its consolidated postretirement obligations to a yield curve created using high quality bonds that closely match those expected future cash flows. This rate decreased during 2019 due to market conditions. The assumed healthcare trend rate is also reviewed at least annually and is determined based upon both historical experience with the Company’s healthcare benefits paid and expectations of how those trends may or may not change in future years.