SOUTHWEST AIRLINES CO

13. EMPLOYEE RETIREMENT PLANS

Defined Contribution Plans

The Company has defined contribution plans covering substantially all Employees. Contributions to these plans are primarily based on Employee elective deferrals as well as their eligible compensation and Company performance. The Company sponsors Employee savings plans under section 401(k) of the Internal Revenue Code of 1986, as amended. The Southwest Airlines Pilots Retirement Saving Plan has non-elective Company contributions. In the Southwest Airlines Co. Retirement Savings Plan (the "Retirement Savings Plan"), non-elective contributions are allowed for certain eligible workgroups that have negotiated such items as part of ratified collective-bargaining contracts, Company matching contributions are made for eligible Employees contributing to their 401(k) accounts, and the Company contributes a percentage of its annual net profits, as defined.

Amounts associated with the Company's defined contribution plans expensed in 2025, 2024, and 2023, reflected as a component of Salaries, wages, and benefits, were $1.0 billion, $825 million, and $941 million respectively.

Defined Benefit Plan

In 2024, the Company began offering a market based cash balance defined benefit plan covering eligible Pilots. The Company's funding obligation for the qualified plan is governed by the Employee Retirement Income Security Act of 1974 (ERISA) and any applicable regulations. The plan provides pension credits equal to 1 percent of eligible wages for qualifying participants, which are credited based on in a designated portfolio of equity and fixed income assets. For payroll periods ending on or after January 1, 2026, each pension credit shall be equal to 2 percent of eligible wages for qualifying participants. Participants’ hypothetical account balances reflect interest credits, calculated monthly based on the actual returns (positive or negative) of the designated portfolio. Participants' benefits consist of the sum of the pension credits and the returns (or losses) accrued on the hypothetical invested contributions. Amounts exceeding the limits established under the Internal Revenue Code will be provided through a separate unfunded arrangement or paid in cash. As a defined benefit plan, participants are guaranteed a distribution equivalent to no less than the sum of the original pension credits. For married participants, the default form of payment is a 50 percent qualified joint and survivor annuity payable over the joint lives of the participant and spouse unless the spouse consents to an alternative form. For unmarried participants, the default form is a single life annuity. Other annuity forms may be available as described in the plan document.

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 market based cash balance plan and postretirement benefit obligations for the years ended December 31, 2025 and 2024:

During 2025, the Company recorded $59 million in combined actuarial losses as an increase to the market based cash balance and postretirement benefit plans with an offset to AOCI. These 2025 actuarial losses are 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 a decrease in the discount rate used.

Benefits earned under the market based cash balance plan are expected to be paid from funded benefit plan assets, while the postretirement benefits are funded from current assets. The following table shows the estimated future benefit payments expected to be paid:

The following table reconciles the funded status of the postretirement benefit plans to the accrued benefit plan cost recognized in Other noncurrent liabilities on the Company’s Consolidated Balance Sheet as of December 31, 2025 and 2024.

The consolidated periodic benefit cost for the years ended December 31, 2025, 2024, and 2023 included the following:

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 market based cash balance and postretirement plans at December 31, 2025, 2024, and 2023:

(a)The assumed healthcare cost trend rate is expected to be 8.35% for 2026, then decline gradually to 4.5% by 2035 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 benefit obligations to a yield curve created using high quality bonds that closely match those expected future cash flows.

This rate for postretirement benefits decreased during 2025 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 benefits paid and expectations of how those trends may or may not change in future years.

The expected long-term rate of return on plan assets is based on historical market and volatility data and expected market conditions, reflecting a target asset allocation of 40 percent equities and 60 percent fixed income. The Company reviews the rate of return on plan assets assumption annually. The annual investment performance for one particular year does not, by itself, significantly influence the Company's evaluation.