EMPLOYEE RETIREMENT PLANS

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements [Abstract]

Employee retirement plans

16. EMPLOYEE RETIREMENT PLANS

Defined contribution plans

Southwest has defined contribution plans covering substantially all its Employees and has announced that AirTran Employees will be eligible to participate in its plans beginning in 2012. The Southwest Airlines Co. Profit Sharing Plan (Profit Sharing Plan) is a defined contribution plan to which the Company contributes 15 percent of its eligible pre-tax profits, as defined, on an annual basis. No Employee contributions to the Profit Sharing Plan are allowed.

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 defined contribution plans expensed in 2011, 2010, and 2009, reflected as a component of Salaries, wages, and benefits, were $316 million, $350 million, and $203 million, respectively.

Postretirement benefit plans

Southwest and AirTran provide 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.

Including AirTran as of the acquisition date, the following table shows the change in the accumulated postretirement benefit obligation (APBO) for the years ended December 31, 2011 and 2010:

(in millions)		2011		2010
APBO at beginning of period		$	91	$	86
	Service cost		17		16
	Interest cost		4		4
	Benefits paid		(5)		(7)
	Acquisition of AirTran		3		0
	Actuarial (gain)/loss		(3)		(8)
APBO at end of period		$	107	$	91

The assumed healthcare cost trend rates have a significant effect on the amounts reported for the consolidated postretirement plans. A one percent change in all healthcare cost trend rates used in measuring the APBO at December 31, 2011, would have the following effects:

(in millions)	1% increase		1% decrease
Increase (decrease) in total service and interest costs	$	2	$	(2)
Increase (decrease) in the APBO	$	8	$	(7)

All plans are unfunded, and benefits are paid as they become due. For 2011 and 2010, contributions to the consolidated plans were $5 million and $7million, respectively. Estimated future benefit payments expected to be paid for each of the next five years are $6 million in 2012, $7million in 2013, $9million in 2014, $11million in 2015, $14million in 2016, and $108 million for the next five years thereafter.

The funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of its 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, 2011 and 2010.

(in millions)	2011		2010
Funded status	$	(107)	$	(91)
Unrecognized net actuarial gain		(53)		(57)
Unrecognized prior service cost		1		2
Accumulated other comprehensive income		52		55
Cost recognized on Consolidated Balance Sheet	$	(107)	$	(91)

The consolidated periodic postretirement benefit cost for the years ended December 31, 2011, 2010, and 2009, included the following:

(in millions)	2011		2010		2009
Service cost	$	17	$	16	$	10
Interest cost		4		4		4
Amortization of prior service cost		0		0		1
Recognized actuarial gain		(6)		(5)		(7)
Net periodic postretirement benefit cost	$	15	$	15	$	8

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:

		2011(2)		2010		2009
	Wtd-average discount rate	4.05	%	4.30	%	4.80	%
	Assumed healthcare cost trend rate(1)	7.50	%	7.50	%	8.00	%
(1)	The assumed healthcare cost trend rate is assumed to remain at 7.5% for 2012, then decline gradually to 5.0% by 2024 and remain level thereafter.
(2)	Includes AirTran plans.

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. 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.