Best of luck to the Spirit Pilots, they’re worth MORE.

 

Use www.archive.org which is Wayback Machine and put in www.airlinepilotcentral.com

Click 2010 and you can find the info you asked.

Here's Delta pay from July 2010:

 

Can anyone explain 401k limits from the employee and employer standpoint?

Say one makes 250k and company gives 15% DC and Employee puts 10% for the 401k. So employee math shows 25k and the company gives 37.5k for the year.

Where does the 18.5k and 55k limits come in?

Is 18.5k the max limit on the employee, so in this case you can put in 10% but as soon as you hit 18.5k your paycheck will no longer deduct towards the 401k?


And what case does "cash over cap" happen?

 

These are IRS limits for qualified defined contribution limits - personal being 18.5k after which the company stops deducting your 401k contribution. Then you have the company contribution.... the IRS limits the company to $36.5k contribution per year. Total being $55k for 2018.

Now, if the company contributions were to reach $36.5k for the year, the excess is paid out to you on a paycheck. At Southwest, that’s how it works and pretty sure at any legacy. In our case at Southwest, our profit sharing is also considered a qualified retirement plan. So, if you’re under 50, it goes like this:

Your 401k contribution (max $18.5k if you’re under 50) + Company 401k contribution/NEC/B-plan + ProfitShare cannot exceed $55k for the year.

If it does, you get the excess in taxable cash or you can put it in nonqualified accounts but these accounts then aren’t secure in the event of a bankruptcy.

 

I’ll take a stab at answering. By no means am I an expert, so if someone sees something wrong, feel free to correct my guesswork.

I’ll explain it with an example of a Captain making $300,000 annually with a Direct Contribution plan of 16% in 2018 who is under 50 years old.

The personal contribution limit is $18,500 for those under 50. You can throw on additional $6,000 over 50. The total employee and employer contribution limits are $55,000. Your $18,500 contribution is included in the $55,000 limit. Therefore, you have an allotment of $36,500 remaining. If that Captain has a DC plan of 16% in a cash over cap plan, the company owes him $48,000. However, he only has room for $36,500 in his 401(k). The remaining $10,500 is the cash over cap funding and will be taxed in whichever account he directs the monies to.

There is also another IRS limit in play. There is annual limit of $275,00 that applies to DC plans. Once you hit that limit, the company is off the hook on contributions. So the Captain that earns $300,000 will hit the cap at $275,000 leaving a company contribution of $44,000 in the DC Plan. There would be $4,000 remaining over the cap in this instance that would be taxed.

Neither cap has ever applied to me, so I can’t know for sure, but I think that is how the IRS limits are applied. I’d this Captain wanted to maximize his tax efficiency, he should contribute just $11,000 and the company would put in the remaining $44,000 with an additional $4,000 cash over cap. But like I said, this is all just guesswork.

Here’s a link:

https://www.irs.gov/retirement-plans...e-annual-limit

 

Real life examples at Southwest:

Virtually every captain hits the 36.5k IRS max company contribution limit. Once they do, they effectively get 14.2% raise until the end of the year as they get the NEC contributions in cash now.

A junior FO example... I made 170k last year and I hit my personal 401k contribution limit. The sum of my 401k contributions and the company NEC contributions comes up to 41k for the year. When 2017 PS is announced, i need it to be at least 8% in order to hit all IRS limits. If it’s over 8%, anything past that figure in my case will come to me on my April 20 paycheck. So say it’s 12% PS... I’ll get 8% of my 2017 waves that will max out my retirement, and 4% of my 2017, I’ll get paid on my April 20 paycheck.

Make sense?


Sent from my iPhone using Tapatalk

 

Now we are back on track. Let’s also keep in mind in Spirit management’s last offer in September they wanted to keep overages for themselves. The AIP pays the overages back to the pilot as is industry standard.

To the southwest guys what is NEC?

 

Nonelective 401k contribution from the company. It’s like a B-plan.

 

Ahhh, cool. Thanks brotha!

 

He's probably referring to a "non-elective contribution" in regard to the "qualified" retirement plan.

AU