This episode is going to delve into the significant new Tentative Agreement for Southwest Airlines pilots and break it all down so you know the most important details. By the end of the show, you should be up-to-date on the impact and the implications of the TA.


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More About This Episode:

We’ve invited Captain Robert Ecklund of Southwest Airlines to talk about some of the key aspects of the contract that’s coming out, including compensation, disability benefits, retirement plans, and the implementation schedule. We’ll focus on some of the intricacies of the cash balance plan, the exceptional disability benefits and that compensation increase.

If you are a Southwest pilot, concerned about your financial future, wanting to know some of the ins and outs, this is going to be a really important conversation to listen to, and hopefully pick up some great knowledge here.

Stay tuned after our conversation with Rob because we’ll bring on Zach Smith, Managing Partner, CPA to dive into all the tax details so you’ll have a better idea of what this could mean on your bottom line.


Sky Snippets:

0:00 – Intro

1:45 – Guest intro

5:36 – Overview of the TA

7:03 – Cash balance plan

11:35 – Changes in disability

17:30 – Company contributions

21:55 – Tax rates

26:22 – Compensation details

33:30 – TA Tax implications with Zach Smith from Pilot-Tax



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Episode Transcription:

(Note, this is an automated transcription. Please forgive any errors.)

Walter Storholt  00:00

Hey, welcome to another episode of the pilots advisor. I’m Walter Storholt. And in a few moments, we’re going to bring you a great conversation between, of course Ryan Fleming, the pilots advisor here on the podcast to hear from every episode, but he’s joined today by a special guest, Captain Robert Eklund, of Southwest Airlines. And this episode is going to delve into the significant new tentative agreement, the TA for Southwest pilots that’s going to discuss its impact, they’re going to discuss the implications of the TA and much more, they’re gonna talk about some of the key aspects of the contract that’s coming out, including compensation, disability benefits, retirement plans, the implementation schedule, they’re going to focus on some of the intricacies of the cash balance plan, the exceptional disability benefits and that compensation increase. So this can be a really important discussion. If you are a Southwest pilot, concerned about your financial future, wanting to know some of the ins and outs, this is going to be a really important conversation to listen to, and hopefully pick up some great knowledge here. So they’re gonna talk about some of the pros and cons of these changes and give you that in depth analysis that you might be looking for. So let’s get to it. We’ll roll the intro and then bring you the conversation between Ryan and Robert. Hope you enjoy today’s episode of the pilots advisor. Welcome to the pilots advisor with Ryan Fleming of first officer with FedEx on the triple seven at the hill. On this show will delve deep into tailored financial strategies, insights and wisdom crafted exclusively for those who rule the skies will help you navigate your financial flight plan with the same mastery you exhibit in the cockpit Prepare for takeoff into a journey of financial clarity and empowerment. The pilots advisor starts now.


Ryan Fleming  01:44

Southwest pilots Welcome to another edition of the pilots advisor podcast. And we have a very, very special show bringing in the big guns today. I got a good friend of mine, former Academy grad and I’ll tell you a bit more about his background. I think he flew 130s and Casey 10s in the Air Force, Southwest Airline captain now in the financial services industry. And I’m gonna let him talk about that. But want to welcome to the show. And thank you so much. We have Rob Eklund on the show,


Captain Robert Ecklund  02:12

Rob welcome. Hey, pleasure to be here, Ryan.


Ryan Fleming  02:15

Well, you know, of course, I’m not a Southwest Airlines expert. And looking at the TA. It’s an exciting time for Southwest pilots right now. And of course, all my southwest clients are asking me questions about this or about that. And I keep telling them wait for the podcast, when I talk about it. There’ll be plenty of time before the vote goes out. But But thanks for being here. And I gotta be honest with you, almost every single southwest pilot I’ve talked to is pretty excited about this TA and it also thinks that it’s probably gonna get passed.


Captain Robert Ecklund  02:45

Yeah, it’s pretty exciting stuff there. And they’ve rolled it pretty quick. Actually, Ryan, so they, the voting is open right now, which is, which is pretty surprising. I wasn’t quite sure how they’d get that out. When the TA kind of started coming into into process in December there it looked like we might get one. And then when we got it, they’ve rolled it out. They’ve done a bunch of road shows. And And first off, I’d definitely say thanks for having me on. And I knew you way back before. I know we’re gonna get into this. But I knew you back before you’re invited to the NFL Combine. So I did the math on this 27 years ago, right, I think.


Ryan Fleming  03:23

First off, you’re showing how old we are now.


Captain Robert Ecklund  03:26

Yeah, I had to


Ryan Fleming  03:28

throw me under the bus with that NFL Combine thing. With that being said, I want to make fun of both of us. I like how we all have our little we’re like little kids, we have our toys behind us. And just so I can get to the age because Rob is actually a little bit older than me. So just so I can get to rob status. I’m going to put some cheaters on here that I’m just starting to have to use. Oh, there you are nice.


Captain Robert Ecklund  03:53

Policies for the face for radio. Yeah. So


Ryan Fleming  03:56

anyway, we like to have fun here. And obviously, we’ve known each other for a long time. But I wanted to reach out to rob because, you know, he has intimate knowledge of what’s going on here at Southwest and of course, a TA. And I feel like Southwest pilots have have been in the position that I’m in right now being a FedEx pilot, where we’ve had negotiations going on for a long, long time. And so I’m super excited for you guys to have this new ta ta out there. And it seems like most people are pleased. So what we want to do is just get into some of the issues and some of the talking points on what we see as advisors and of course, insert whatever kind of disclosures you want right now this is not financial advice and all that. We’re just here to pilots talking about an ETA and and excited about it. And like I said, I want to bring bringing the big guns here with Rob so we can talk intelligently about some of those things. I love


Captain Robert Ecklund  04:47

  1. Yeah, thanks, man. And yeah, I’m sure there’ll be bumpers added on for, for all the legalese stuff, but we’re not giving advice just talking about it. And obviously I’m not representing Southwest in any capacity just Just talking about the contract, and I’ll try to keep my opinions out of it for sure.


Ryan Fleming  05:03

Okay. Well, you know, I think our pilots want a little bit of opinions here and there where you can, can offer it. But I’m gonna let you roll with this. I mean, we know we talked about some talking points that we wanted to do. You’re talking about, overall, the contract, talked about some compensation. Some of the stuff with disability retirement, I know there’s a lot of questions about the cash balance plan. So I definitely want to talk about that and try to make sure people understand what we’re, what they’re trying to accomplish there and how it is from a tax perspective. So this, what do you want to roll with first?


Captain Robert Ecklund  05:35

Yeah, just probably the quick overview, I’m not going to get into some of the you know, there’s so much in this contract, obviously, was a complete rewrite. This is a great segue, complete rewrite of our contract, we’d had some decades old language that was in there that we need firmed up, frankly, and, and they had some notes, I guess, that they take during these negotiations, that really worked in our favor, and the company would use them in a certain way. And pilots wouldn’t like that. So this was really the firm all of that up, as not to mention, clean up some of the disability stuff, the compensations and no brainer. But all of that was in this contract. And I think, you know, from the union’s perspective, perspective, the company’s perspective, they read something that the pilots are going to be very happy with. I think that’s that’s an opinion there. But complete rewrite, there was I think, 3000 line items there and 43% were changed. And language was firmed up, as well as improvements in compensation, retirement disability, and scheduling work rules that I’m not going to really get into here, there’s going to be a lot of tournament players, as we say, at Southwest, that will be going to be picking through that stuff. But focusing on the financial side, the Disability Retirement compensations right up there. Obviously,


Ryan Fleming  06:48

being in this industry and seeing it I know with a contract, the devil is always in the details. And sometimes you have to wait to the contracts past and you start seeing how the company is using certain language. So I hope, I hope a lot of those language changes benefit you guys. But the first thing I want to talk about is I get a ton of questions about a cash balance plan. And I’m actually going to have a break off of this from a CPA at pilot tax giving his opinions on the cash balance plan and what it was designed to do, and some of the issues with it. But basically, and feel free. If you disagree with anything I say I do want to hear your opinion, because you are in the industry, but but what’s going on is a lot of the company contributions that they’re putting in are getting to such a high level they want to have, it’s going to actually exceed the IRS limit 2024, we have 69,000. So hey, how do we fix that. And so they’re having that rollover, go into a cash balance plan, which is all tax deferred. Now in general, tax deferred money could be a good thing, you’re not paying tax on it now. But because of these high contributions that all the airlines are doing in this industry, a lot of pilots have a ticking tax time bomb in retirement where they have way too much tax deferred money because they didn’t have a Roth option all these years. So some of the downsides to the cash balance plan is when it gets rolled into there to fit more tax deferred money, you lose all control of it is a thing I really don’t like. Also, it’s invested very, very conservatively. Some of them are even like 40% equity, 60% fixed income, which is even more conservative than most people are in retirement, which I don’t like. Okay, so those are some of the downsides. And I really liked what Delta Airlines did were they give gave pilots the option to opt into it or opt out of it, where they could keep control and they could really crank up their Roth contributions, whether it’s after tax conversions, or just a Roth 401 k and then deal with the money afterwards. So it seems in this ta it doesn’t look like Southwest is giving you guys the option. If the TA passes, that spillover is going to go into the cash balance plan, which, like I said, it’s not a horrible thing, but there’s definitely some things I don’t like about it. Yeah,


Captain Robert Ecklund  08:58

that was a great tee up for me, love. So, you know, comparing the delta to the southwest contract, they had the 18% there for the non elective contribution, I think, in 2026, is when we get that 17% Or excuse me, 18% right away, and there’ll be 20% later on for us, which is 1%. So the market based cash balance plan for us is 1%. Automatic, you don’t get opt in and we get to opt out. But what that does, it says up a defined benefit versus the defined contribution plan, which I’m sure you’ve gone over can go over. But all that does, to your point, Ryan is with all this money that that we’re now making as pilots, you know, sometimes our savings doesn’t go up. So that defined benefit allows us to get more dollars in a qualified tax advantaged account, which to your point it you have to weigh the past the pros and cons for each person in each situation. So give Ryan or myself a call for sure. There’s nuances for younger folks that they, they probably don’t want to be in that 4060 portfolio that it rolls into. But there’s some security there too. So definitely situation dependent. But what I love about it is it’s a very elegant solution that Southwest came up with. It’s 1%, just off the top, and then any non elective contribution spill money would go into that. So above the 415, c limit that you talked about the 69,000, that would spill into it, in addition to the, to the 1%. So if you’re making, you know, the magic number for the 401, say, for 180 17 is 345,000, you get the 1%. So 3450. And then spill, in addition to that for, you know, this next year could be 16,100. So, as opposed to throwing a lot of numbers. So rewind, if you need to 69,000, you know, limited for this year, for under 50 years old, you’d be able to get up to $85,100 in that qualified account. So that’s kind of nice, we like that


Ryan Fleming  11:03

it’s good. Most of the pilots you work with must be it must be, excuse me, must be a lot smarter than the pilots I work with. I tried to, I tried to talk, I try to talk concepts, you know, that’s better. Because otherwise, I get to look like this like deer in the headlights look. But ultimately, saving is better than not saving. So if it forces you or helps you to keep some of that money being saved for retirement, that’s a great thing, I’d much rather have that happen, then it spill over into your income, and then you go spend it wherever you go. And I get to see all these different differences and all the airlines and what their TAs have and what their retirement plans have. Something that I saw on this that I thought was amazing, is a change that you guys had in disability. And I want you to talk about that. Because at FedEx and some of the other airlines that you’re always kept, okay, they’re going to do a 12 month look back, and then they’re going to pay you sick, like at FedEx at 60%. But it’s going to be capped at some number. And I was looking at yours. And I was like, oh my god, this is amazing. There’s no cap. So you could have a huge year, go out on disability and then be locked into an amazing income. I was like, wow, yeah,


Captain Robert Ecklund  12:12

yeah, before I get to that, Ryan, the one thing I would say with the market based cash balance plan that you kind of talked about is having that decision, you don’t get the one to the decision on the 1%. And then it goes up to 2%. And that’s all in addition, if you look at the Big Four, as we say, with American, united, delta and southwest, that’s above and beyond any of their non elective contribution, so that 1%, you know, you could say could go towards, you know, your pay rate, which if you’re trying to get towards that 757767 narrowbody. Right, that would help with that. But then above that, that that spill cash, as we say the NEC spill cash, what’s important about that is you can’t you do have control of your own 401 K contributions. And you can throttle those back, forcing more of the company dollars into not the market base cash balance plan, which is important. So you do have a little bit of control, or quite a bit of control on that spill cash just throttling back your 401k contributions.


Ryan Fleming  13:11

Yeah, absolutely. And I but I also think I like it because it is if you kept your contributions where you’re trying to max out, it’s forcing discipline to where it’s forcing that to be retirement money, where it spills over, and it’s retirement money. So we don’t go see that shiny Corvette or that new boat, you know, I know that I’m one of them. I know the way pilots are a man, they like to go, you know, go blow it and, and there’s got to be a whole break off of this where I talk to a CPA as well, because those retro checks that you guys are gonna get, that’s going to be a big deal. And you don’t want any tax surprises. So if you’re one of those individuals that’s going to go spend that versus saving it for that tax bill that’s coming, we’re going to have a whole break away where a CPA talks about that for you guys.


Captain Robert Ecklund  13:51

That’s, that’s gonna be great. So glad you’re doing that for folks. Because because they need that help. And I would love to talk and you know, circle back to that too, because there’s a couple of foot stampers with that, that your your clients definitely want to know about with that, as they’re calling it ratification bonus pay the RBP. But to your to your disability question. I think that’s just that’s huge that we are finally fixing that for Southwest. I know a lot of carriers had some better disability plans. And we did and ours was overly complex. I mean, you almost had to have a PhD to figure out when you were going to certain disabilities were going to kick in you had your short term disability or long term disability, we’ll get into that. It’s very simple now. So you have the 60 day elimination period, and that’s set. So you don’t have to worry about all these different calculations. It starts then. And to your point, it’s 50% which some people are him and Han because it used to be a different ratio for our and I’m not going to talk about those because it just kind of convoluted the issue. But there’s no cap those those. The old plans had caps. These ones don’t have caps, and if you get into a tea You’re pointing to non taxable, you can select the non taxable versus the taxable. And you’ll see that in your imputed income, which we’ll talk about, again, I’m sure. But that imputed income is where you kind of pay that initially. And then when you get that benefit 50% If you make, you know, $500,000, you’re getting $250,000. tax free. That is insane. I, you know, to be honest, I’m wondering what you think about that. I was like, oh, you know, this is sustainable for the company. But that’s, that’s a big thing. It’s fantastic for our pilots, and, and well deserved. And, you know, given all of the risks that we take in this industry, that that shouldn’t be the way it is, I think, the other big win for us, I would


Ryan Fleming  15:43

say that’s industry leading for sure. Because it’s amazing. And you’re right, we do, you know, not only you know, it’s harmful on our bodies with a lot of the risks we take and being at altitude and what have you. So kudos to your your group for negotiating that. I think that’s great. Yeah.


Captain Robert Ecklund  15:58

And the other big win, for us was the mental part of it, which is obviously, you know, been in the news a lot lately, with the Alaska airline pilot there. So you are out 50%, all the way until mandatory retirement, which if it’s 65, or 67, or whatever it ends up being, you get it all the way till that retirement date, and it includes mental there, there are some caveats there. But overall, that’s kind of generally speaking.


Ryan Fleming  16:28

Well, if you guys haven’t noticed, yeah, not only is rob the eye candy on this video podcast, he’s also the brains, which is exactly why I asked him to do this. Okay. So thank thank you for really digging in and talking about some of these things that I think is going to really help out southwest pilots. And then of course, we have a lot of other players, you’d be amazed at how many pilots who actually listen to this podcast, just hearing about what’s going on in other industries. And when I look back, I look at I feel like Southwest pilots are compensated very well. But when you start looking at all the benefits in the retirement packages, it is very complicated, because stuffs all over the place. And another thing I saw on this, what I what I think’s an amazing opportunity, is that you guys have all your profit sharing sitting over at Empower, it’s kind of locked off, you can’t really do a whole lot with it. And my understanding is there’s going to be a one time option. Or if you’re over 59 and a half, where you can actually roll that and put it wherever you want any custodian that you want, and be able to do what you want with it. Can you talk a little bit about that?


Captain Robert Ecklund  17:29

Yeah, let me finish up one. One other big point I wanted to hit and sorry, I’m looking at my other screen here. But this on the disability front, is we didn’t use to get retirement contributions off of that model. Yeah, the company contributions. Yeah, exactly. So now we’re gonna get retirement contributions. So if you’re out, you know, that’s the big thing as planners, we always talk about, hey, you’re out on disability, don’t forget you, you got to still be saving for retirement. So huge, huge when they’re the 17% non elective contribution plus the 1%. And then that goes up to 2% and 18%, and 2026. So that’s just that. That’s huge. I wanted to I’ll say it


Ryan Fleming  18:08

one more time. industry leading right there. That is impressive. It’s very impressive. And a great win for you guys. Huge,


Captain Robert Ecklund  18:13

you know, the guy who was negotiating it, Damien Jeannette, I told him during the roadshow, I was like, if I didn’t already have a firstborn son, I’d name him Damian, Jeanette, but already have he, I mean, he knocked out the park on several, several things. And, you know, kudos to the company for coming through and paying for it. I mean, hats off to them for for agreeing to this stuff, because I really feel like we deserve it as pilots and, and southwest pilots, you know, we’re due, and I’m hoping that it helps the industry, you know, for other other carriers as well. Well,


Ryan Fleming  18:44

absolutely. And I mean, you guys, you guys work very, very difficult schedules. And you guys it’s been a long time coming. I mean, how many years are we down now with this negotiation? I think it’s been one of the more frustrating ones in the industry.


Captain Robert Ecklund  18:58

Yeah, yeah. It was called contract 2020. So that gives you a perspective on how long we’ve been doing it. I know we’re going to talk about this a little bit but hats off again to the Union and the company but the union they didn’t have they didn’t came out they just put the facts in front of us and they let you know the tentative agreement, really speak for itself there was no sales job on their part and if you haven’t gone to swap If you’re southwest guy or gal and check that out. They have so much so many videos and podcasts that they do a fantastic job of getting into the really nitty gritty details of the TA so see


Ryan Fleming  19:35

and I have to step in there and say something because of the company on that we’ve had a problem with this rather than having a TA speak for itself and see it all that hey, this is what we have and it’s industry leading and we want to all vote for this. There’s there’s a lot of sales jobs that’s gone on and and which I do not like. But I have to I’ve actually asked that question too many southwest pilots client It’s prospects. Hey, how are you guys getting this ta information? Is it? Is it just presented out there? Or has there been a sales job, and they kind of look at me funny like sales job. And it’s just because of what I know. And like, it’s been that way, the last two contracts, it


Captain Robert Ecklund  20:13

was super refreshing the negotiating committee, headed by the folks over there, God revenue, just did a fantastic job of explaining that I thought during the road shows of, hey, we took the polling numbers, a bunch of polling led up to this after the last contract and 2016, they did a bunch of polling, and they let that drive the negotiations. Now, they obviously weren’t going to put out what those numbers were because then the company would know where we wanted what we wanted. So those those numbers are close hold, for sure. But they let that, you know, the pilots speak for what they wanted, which is why, you know, if you if you ask, what are the downsides of the contract, we didn’t get some things like crew meals, and some other things that that are kind of standard at other companies. And the reason for that was, hey, we wanted to go after these big time, benefits and disability and compensation plans that are really above and beyond what some other carriers have. So I think that’s the let the polling drive that. And so when it came time to kind of present that to the to the pilot group here, it spoke for itself,


Ryan Fleming  21:22

which is the way it’s supposed to be in my opinion. And of course, we’re working on ta 2.0 hoping for something like you guys have a TA that sits there, and it speaks for itself. So congratulations to you guys again. Yeah, thanks,


Captain Robert Ecklund  21:35

man. And, and we went through this iteration, too. We, you know, we had a TA to back in 2016. There. So we had to go through where it wasn’t what necessarily the pilots wanted at all in the TA one. And finally, when we got there with with a little bit of consternation. Yes. And I apologize that you asked me another question. I circled back and I forgot what it was, I apologize.


Ryan Fleming  22:00

Let me see. I was trying to think of what we moved on to because I can’t remember either. And of course, let


Captain Robert Ecklund  22:05

me let me talk a little bit about the gratification bonus, if you don’t mind. That’s what


Ryan Fleming  22:09

it was. We talked about CPA talking about what to do with it. tax consequences, how not to have a tax surprise, because nobody likes taxes anyway. But what’s worse than taxes is a tax surprise, Uncle Sam is going to get his


Captain Robert Ecklund  22:23

and you probably have heard this client’s no doubt. Right. But unfortunately, our tech debt sometimes is is a hindrance to us. So what they have at the company here is called workday. And apparently, they don’t have the option to change the taxes, the tax rate on that. So most bonus pays tax does, you know, 22%? Well, we’re gonna get a tax rate of 37% on this. So but


Ryan Fleming  22:52

here’s the funny part about that. This is actually a good thing for you guys. And I and we’ll have a breakaway on this with the CPA. So what happens at other airlines, though they get taxed at the withholding? Is that that bonus rate that you just talked about, but that doesn’t change what your income tax is going to be later. So guess what, a lot of people aren’t saving that extra gap between 22 and 37. Or wherever you were you said and guess what? It’s a big surprise. And I already went and bought that airplane or already went got that Corvette. And now you got to come up with the cash.


Captain Robert Ecklund  23:26

So I Ovation Ryan. Exactly.


Ryan Fleming  23:28

So what so I actually look at what’s going on, even though I think you said it was workplace is unable to give it to you guys. And it’s withholding more. It’s almost protecting pilots from themselves and I gotta be honest, I, I work with pilots all the time. I am one of them. And I actually saw that we talked about it, we were like, God, I think that’s actually better for pilots. Protecting you guys from getting more of a surprise.


Captain Robert Ecklund  23:53

No doubt. I mean, obviously, we don’t love giving money when we don’t need to. But at the end of the day, it’s going to all come out in the wash when you file your taxes. And if you really want to, you know a few months down the road, that’s what we’ve advocated. At leading edge there’s, hey, take a look at your your pay. And if you need to adjust, go in and change your W four and have less taxes come out but it’s but I think you’re exactly right.


Ryan Fleming  24:18

It’s almost like you listen to my conversation that I recorded previous to this with Zack Smith at pilot tax because we were talking about how it wasn’t going to come out at the normal rate. But it might be okay.


Captain Robert Ecklund  24:30

Yeah, yeah. Charlie and Kevin over over with me there they were talking about it and they had some great points. So I love it, man. Yeah, and the other thing too, you know, so just so you know, or your listeners know, you probably already know this but the you know, you’re gonna get that No, it looks like if you go to swap and check it out under the resources and calculators it’ll tell you what, what they have. You know it’s not exact but pretty close to what you’re going to get in the ratification bonus pay I remember that’s the top end, that’s the gross. So 37% is going to come off that then a 1% dues for swappa. And then your FICA comes out at some point six, five. So take 45.65% off of that, and you’ll realize what you’re doing, but throw in just


Ryan Fleming  25:19

hearing that, what? What 70% of my money’s not even showing up


Captain Robert Ecklund  25:22

50%. Yeah, and then that same can take into account whatever you have selected for your full one, or for your bonus skin, it’s swab your bonus, yeah, yeah, your bonus contribution to your 401 K. So that bonus contribution will come out as well, if you have it Roth, you know, if you have $100,000, you’re getting the bonus, take 45,650 out of there, because you’re getting all taxed on if you can, if you have 20% Roth, if you have pre tax. Now you lower that a little bit. So something something to keep keep in mind, because you’re obviously doing the pre tax and it takes a tax


Ryan Fleming  25:55

away. And once again, with that we’re not giving advice, there’s a bunch of different strategies based off of what you think may or may not happen today or in the future or who gets elected. So just just know or talk to a tax professional, what might be the best route for you?


Captain Robert Ecklund  26:11

Yes. What else you want to cover? Here? We got?


Ryan Fleming  26:15

I think we’ve covered this and to be honest with you, I would like you, you know, once again, talk about the compensation talk about how that that flows in because I always joke with you guys are some of my friends that are southwest pilots and my Hey, man, what equipment are you on now?


Captain Robert Ecklund  26:30

Quick number 50% increase over the life of the contract for the for the compensation will get 29.15 and about 29% on the effective date of January 1 2024. And I think it’s close in 2022. So the January 22. So excuse me. So I think that that will be the time when it’s effective. On a lot of things, implementation was a big source of consternation right towards the end there. And some things to happen right away, some things don’t the majority of things happen right away, but 29% ish and change, right now, then the next three years will be 4% each year with 2028 go into 3.25%. And this, this last part is a real win, I think, again, for both the company and the union here is, hey, let’s not prolong negotiations any more than we need to, and maybe a little incentive on that is after 2028, you get into a 2.5% increase on the previous 12 months earnings, your W two earnings. So in 20, January 1 2030, you’re gonna get a paycheck of 2.5% based on your WD and


Ryan Fleming  27:40

I’m sorry, but I don’t think there should ever be a contract that doesn’t have some sort of increase like that. Because if we’re all going to come to the table with good intentions, okay, there’s got to be that adjustment. And I think it should be more like four or 5%. So it actually forces us to want to come to the table, because we know the way this game has been for a long time we just kicked the can down the street. You know, it’s obviously saving the company money. Well, we got a big taste of inflation over the last few years. And it’s it’s been a problem a big problem. And I also want to bring up the implementation schedule. That is huge. I mean, we are in a contract, and we’re still trying to negotiate a 2020 contracts as well. There is still stuff that hasn’t been implemented that was promised in the lot last contract. So the devil is in the details. And where there was ever any gray areas. Sometimes they get taken advantage of So it matters. And the fact that you guys have a great implementation schedule for for PE and some of these other things. You know, once again, I I commend what you guys have been able to put on the table here. And I’m actually very excited for all southwest pilots. And I hope it just trickles over to the rest of the industry Hint Hint, FedEx. Yeah, the


Captain Robert Ecklund  28:53

only other thing that probably is a big foot stomper for your folks is the work rules, I’m not going to get, you know, in depth on that, because you can get right over people’s heads real fast. But they’ll the Southwest folks know that there’s a difference between how we operate and how we want to operate. And so this contract tries to work with some of those or work towards some of those improvements. So we have leg change, override and pay multiples, that are really, if we keep operating the way we operate now could lead to some really big money. And we could get that it could be a whole podcast in and of itself because of the way we’ve operated in the past. But what it means is, you’ll you know, a lot of times when things would start changing, you wouldn’t get any more pay because it’d be absorbed by by what was happening. We’d all the changes, we get absorbed by the rigs there that’s no longer going to happen. So


Ryan Fleming  29:47

all these you know, revisions to help out the company. And we have the same problem where through COVID and everything else. Our revisions were crazy, and we didn’t get any extra compensation for it. And I think that that the flexibility has Be there where yes, they can revise the schedule, but it’s going to cost you a little bit because pilots deserve to be paid for the revisits and extra time on the road. Because we have families, we’re making sacrifices.


Captain Robert Ecklund  30:11

Absolutely. And that’s something I think a lot of people don’t understand, you know, you’re gone every week or every month, you know, on the road, you want different things going on, but you don’t want to be sitting there for free. And, and I think that’ll help people, you know, when they’re out there, and things start going going wrong and and least know they’re getting paid for it. So it’s probably going to drive some pretty good behavior on the pilot side that the company like, and then hopefully the company does some things that the pilots will like. So really think that’s a huge win. And the the stacking of overrides on top of themselves. The I know this gets a little bit in the nitty gritty. But if you have ETOPS night and reassign, they’ll stack so all applicable overrides.


Ryan Fleming  30:57

You get paid extra money for flying at night?


Captain Robert Ecklund  30:59

I know. Right, but only one to 515 and ETOPS.


Ryan Fleming  31:05

Wow. And 10 week week, we need some


Captain Robert Ecklund  31:07

of that. Yeah, yeah.


Ryan Fleming  31:10

Well, Rob, I know you’re a very, very busy guy. I want to thank you so much for agreeing to do this podcast with me. Hopefully, the Southwest pilots that listen in any other pilots get something out of this. I appreciate you bringing all the details and expertise on the TA that’s out there. And like I said, I haven’t talked to any of my southwest clients or prospects that aren’t pretty positive on this. This TA and I think it’ll pass with flying colors. Yeah, I


Captain Robert Ecklund  31:37

think I think it’ll pass as well. And you’ll never gonna get 100% what you love, but this one does a lot of good things, I think.


Ryan Fleming  31:46

All right. Well, once again, thank you so much for your time. And we’ll have everything in the show notes. If you guys want to reach out to myself or rob and have any questions about any of this. Thanks a lot for being here, brother. Appreciate


Captain Robert Ecklund  31:55

  1. Hey, thanks, buddy. Appreciate it.


Ryan Fleming  31:57

All right, take care.


Walter Storholt  31:59

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Ryan Fleming  33:51

I thought it’d be appropriate on this podcast talking about the new Southwest Airlines contract like we’ve done with many of the other contracts that have come through just to get a little deep dive on the tax side from a tax professional. So of course, we have Zach Smith from Pilot tax, working with pilots for the last 30 years and NOAA and have many southwest clients. So Zack, I wanted to welcome you to the podcast again. I know you’re a normal guest for us. But like a lot of the other airlines we have big retro checks. I know that’s something we should probably talk about from the tax side. You want to talk specifically about that with Southwest and what their contract might look like.


Zach Smith  34:29

Yes, you’re absolutely right, Brian, this is this is gonna be some pretty big checks for these guys. This has been a long time coming for Southwest and from everything we’re seeing that it looks like this one’s gonna go through and it looks like tentative payment date on these checks is going to be around February 20. I know the union’s got some stuff out there right now that these guys can go through and kind of calculate what they think the retro is going to be. Now the big problem we had with all the contracts that went through last year with all the other majors was the withholding on these checks and I know we’ve done some other or podcasts on this where we knew the withholding was going to be low, based on how the contracts happened last year. Now, we don’t know yet for sure how Southwest is going to do this. But it’s going to be a different kind of problem. It’s looking like Southwest is intending to withhold taxes in terms of their ordinary income tax rate. Now, what that’s actually going to look like, we don’t know, we just what we do know is it looks like that Southwest is not going to treat these like bonuses, which is going to create some different issues, but may make some things easier for some others.


Ryan Fleming  35:32

Can you explain that just real quick, the difference between them doing withholding for a bonus versus an actual, whatever tax bracket, I guess they’re expected to be in?


Zach Smith  35:42

Yeah, so the IRS has rules in place where if you pay an employee a bonus, or additional compensation outside of your normal pay, they’ve got flat rate withholding rules, Delta, American united, all treated these as bonuses, which means they had to utilize the IRS rules that say there had to be 22% federal tax withheld. Regardless how much money you make, it was 22%, withheld earnings, retro checks, which is what caused a lot of issues. Because most of our pilots, as you know, Ryan are at a higher tax rate than 22%. So it sounds like Southwest is going to try to treat these retro ratification pays as regular income as opposed to differentiating it as a bonus.


Ryan Fleming  36:23

So in other words, Southwest has been a little bit more proactive to kind of eliminate some of these problems where there’ll be withholding for the tax rate that the pilot probably will be in. Now, of course, depending on how big these bonus checks are, I imagine there’s still the possibility of pushing them into another tax bracket altogether, though, right?


Zach Smith  36:42

I think it’s more than likely it will be pushing them into another tax bracket. I mean, from, from the clients that I’ve talked to anybody that’s got any kind of time on Southwest, these can easily hit six figures. So I don’t doubt that these are going to push people in the next tax bracket. And then the complicating factor with this is a lot of our pilots, either their husband or wife also works. So it’s going to create withholding issues on the spouse side, because we’re moving these guys and gals up the tax bracket so fast.


Ryan Fleming  37:09

Okay, well in that, and that’s why we want to have you on the podcast here because we want to plan for that stuff. Nobody likes tax surprises, let alone I know, I argue with up we don’t like taxes at all. But it’s a no no, no, no. And so if we can at least plan for that, then we don’t have that surprise. But from the financial advising side, this is where I go back and say, Hey, take that bonus act like it never happened, take that retro check, act like it never happened. And whether you invest that money in a taxable account, or you have it in something else, you have that war chest right there to handle any tax issues you have. Or hopefully we can make that money grow from the time that that you receive that money until you file your taxes for 2024. So that’s my that’s my advice is act like it didn’t happen, let it work for you. And then any tax issues that come up, then you have the money there to pay for it. And of course, we all know Uncle Sam is going to get his cut. I mean, that’s just the way it is. So


Zach Smith  38:04

absolutely. And that’s what I you know, the common calls we’re getting right now is Zach, what can I do about this? Well, my response is, I’ve got nowhere to hide this money, it’s coming through on a W two, we can’t bury it, it’s it’s going to show up, there’s nowhere to put it, it’s going to be on your W two, we’re going to pay tax on it, there’s nothing, there’s really nothing we can do about it. Now what you do with the money after you receive it. Like you’re saying, Ryan, if we choose to invest it, I want the Southwest guys to have the understanding guys and gals that you are likely going to be in a different tax situation going into filing the following year, it’s even worse for American Delta united the way that they did it, I think Southwest is potentially making this a little easier. But I don’t want everybody to think that there may not be a little bit of surprise come tax time. So we need to talk to them anyway and kind of plan for that. Okay.


Ryan Fleming  38:49

And then lastly, on this podcast, many, many southwest, not only southwest pilots, but a lot of the other pilots tend to watch these podcasts. Some of them are already pilot tax clients, or they’re my clients where we always try to get them to work with pilot tax because it makes a lot of these issues easier and streamlined. If there’s any listeners out there on the podcast or on the YouTube channel that want to get tax advisor maybe want to start working with pilot tax. How would you want them to reach out to you I know we’re just into the new year people are starting to think about taxes. You don’t want to wait to the last minute, what’s the best way for them to get in touch with pilot tax be


Zach Smith  39:27

easiest thing go right online to our website, we got a contact form there, submit your information or the phone numbers right there on our website, give us a ring we’ll get we’ll get a time set up to chat, make sure you be a good fit for us and see what we can do to help. The cash balance plan is essentially a setup in the agreement and the contract has been initiated here. They recognize the fact that with the match that’s required by the airline for the retirement or the contribution required by the company for the retirement, that with the increase in wages that they were going to end up exceeding The IRS allowed amount for total contributions into a 401 K plan. So the question became, the contract says you have to contribute a percentage into my 401k. But what happens when that’s completely maxed? Well, the solution they came up with was, we’ll come up with this cash balance plan, right, which is simply another tax deferred account, where this excess contribution from the company is going to get dropped into now, Ryan, you had talked about some of this before, from a tax side of things. This is just like any other traditional retirement contribution that goes into another fund that’s separate, typically conservatively invested. And more deferred money, you can’t touch it to 59 and a half, it’ll be conceded, you know, considered traditional money, benefits to it, we don’t pay tax today, it allows, you know, allows it to grow in this account, it keeps your tax bracket down right now. But the Orion and I had talked to discuss and very much on the same page that the cash balance plans kind of, you don’t have control the money, the money goes in, and it’s gonna be invested according to the way that the contracts work. And we can’t do anything else about it. It’s stuck in there until you retire to get 59 and a half.


Ryan Fleming  41:04

Yeah, and the points that I would bring up, what I don’t like about it is, not only is it still more tax deferred money, where many of our pilots have a ticking tax time bomb of divert money, when we don’t know what they’re going to have to hit get hit in taxes in retirement with what those rates are going to look like or any of that. But at the same time, it’s invested with 40% equity 60% fixed income, which is way more conservative than any other retiree would normally put their money versus something else that we talked about, which I really like about Delta’s plan that not a lot of other companies have where they have the cash over cap. And so what happens is, delta pilots have a lot of ability to get as much Roth money as they want, inside that 401 K plan inside that limit, which for this year, 2024, is 69,000. And then it spills over into income. So now they have that money to do whatever they want to do with it. But continuing to pack tax deferred money is really hurting a lot of our pilots, because I don’t think they really understand what the distribution phase of retirement is going to look like. And it’s contributing to a bigger and bigger tax problem later.


Zach Smith  42:13

Well, that’s exactly right. You know, what you’re making, you’re making good money, you’re in the in the height of your career, most people say, I’ll take the deduction today, I’ll be at a lower tax rate when I retire. Well, that’s, I call it the old school way of thinking is, there’s some truth to that, potentially, however, you’re missing out on potentially 20 years of tax free growth, if we allocate more of this to the Roth plans and things like that, you know, things that you and I talk about all the time. And where we have to be careful, though, is that no matter what we do, a lot of these pilots, regardless of the airline are going to end up with too much money in traditional accounts anyway, even if they contribute all their money to Roth, because any company contributions that go in are automatically traditional. So even for somebody who contributes Roth all the time, we’re still going to have a small retirement ticking time bomb, it’s just going to be smaller, right smaller than somebody who goes all traditional. And our feeling is these cash balance plan is potentially making this problem a little bit worse. But there’s nothing right now, we don’t know that there’s anything we can do about it for Southwest. Yeah,


Ryan Fleming  43:10

that’s what it doesn’t sound like under this TA that they’re going to have the ability to opt out of it like the Delta guys did. And the thing that I would say is, especially for my older clients, guys that are you know, 60 to 65. Right now, for the far majority of their career, they haven’t even had the option to put money into a Roth 401 K, it wasn’t. So we’re seeing guys that have two $3 million of all tax deferred money right now. And then it’s gonna probably continue to grow. And then, you know, once once required minimum distributions come out, but they got a real big problem, and they don’t even know it. Absolutely. And that’s what’s tough. That’s what’s tough tax deferred, money’s good. But you lose a lot of control. And you’re you might get hammered on taxes and, and that’s what we’re trying to do is just just let let you be aware of your options and know that, you know, pay me now pay me later Uncle Sam is gonna get paid. But in most cases, it’s a lot better for us if we can control when we decide to pay that tax. Would you agree with that?


Zach Smith  44:08

That’s exactly it. And that’s what I try to tell all of our clients is I can’t get you away from paying tax, what we try to do is control when and how you pay it, it’s going to get paid. But if we can time it and do it the way that we that we want to do it, it can be a lot better in the long run. And that’s that’s the thing, you know what these retirement contributions, everybody gets, you know, fairly short sighted, right, I’m making a lot of money this year, but in traditional, we got to look 20 years down the road, or 30 years down the road, depending on when you get hired, and incomes or incomes are going up on these on these contracts. These guys. These pilots are gonna make a lot of money over the next 2030 years. And we’ve just got to keep an eye on this stuff.


Ryan Fleming  44:43

Alright, was that guy appreciate your time once again, I love the fact that we can get pilots in front of the CPA and talk about their specific contracts and an industry that you are very well acquainted with. Pilot tax has been working with pilots for over 30 years. There are choice over For all the pilots advisor and if you guys want to reach out we’ll have that information for you that once again thank you so much for your time thank you for being on the podcast