DEFERRED COMPENSATION PLAN FOR PILOTS
Published on November 20, 1998
EXHIBIT 4.1
SOUTHWEST AIRLINES CO.
DEFERRED COMPENSATION PLAN FOR PILOTS
SOUTHWEST AIRLINES CO.
DEFERRED COMPENSATION PLAN FOR PILOTS
Table of Contents
SOUTHWEST AIRLINES CO.
DEFERRED COMPENSATION PLAN FOR PILOTS
PREAMBLE
WHEREAS, Southwest Airlines Co., a corporation formed under the laws of
the State of Texas, desires to establish a deferred compensation plan for the
exclusive benefit of a select group of highly compensated pilots of Southwest
Airlines Co. to provide an additional means by which said pilots may defer funds
for their retirement; and
WHEREAS, Southwest Airlines Co. intends that any Participant or
Beneficiary under the Plan shall have the status of an unsecured general
creditor with respect to the Plan;
NOW, THEREFORE, Southwest Airlines Co. hereby establishes the Southwest
Airlines Co. Deferred Compensation Plan for Pilots, effective January 1, 1999.
ARTICLE 1.
DEFINITIONS
1.1. "Account" shall mean the record maintained by the Committee
showing the monetary value of the individual interest in the Plan of each
Participant or Beneficiary. The term "Account" shall refer only to a bookkeeping
entry and shall not be construed to require the segregation of assets on behalf
of any Participant or Beneficiary.
1.2. "Annual Compensation" shall mean the total amounts paid by the
Company to an employee as remuneration for personal services rendered during
each Plan Year, including any amounts not includable in the gross income of the
employee pursuant to Sections 125 or 402(a)(8) of the Code or deferred by the
employee under this Plan pursuant to Section 3.1 hereof, as well as expense
allowances (to the extent includable in the gross income of the employee), but
excluding director's fees, expense reimbursements and nontaxable expense
allowances, prizes and awards, contributions made by the Company under any other
employee benefit plan or program it maintains, such as group insurance,
retirement, hospitalization or like benefits, and amounts realized or recognized
from qualified or nonqualified stock options or when restricted stock or
property held by the employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture.
1.3. "Beneficiary" shall mean, with respect to each Participant, the
beneficiary of such Participant under the ProfitSharing Plan.
1.4. "Board" shall mean the Board of Directors of Southwest Airlines
Co.
1.5. "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time, and the rules and regulations promulgated thereunder.
1.6. "Committee" shall mean the committee designated by the Board to
administer the Plan.
1.7. "Company" shall mean Southwest Airlines Co., or its successor or
successors.
1.8. "Effective Date" shall mean January 1, 1999.
1.9. "401(k) Plan" shall mean the Southwest Airlines Co. Pilots'
Retirement Savings Plan, as amended from time to time.
1.10. "Mandatory Retirement Age" shall mean the mandatory retirement
age, if any, imposed by the Federal Aviation Agency.
1.11. "Participant" shall mean an individual who has been designated by
the Committee as being eligible to participate in the Plan.
1.12. "Plan" shall mean the Southwest Airlines Co. Deferred
Compensation Plan for Pilots, as set forth in this document, and as amended from
time to time.
1.13. "Plan Year" shall mean the annual period beginning on January 1
and ending on December 31, both dates inclusive of each year.
1.14. "ProfitSharing Plan" shall mean the Southwest Airlines Co.
ProfitSharing Plan, as amended from time to time.
1.15. "Valuation Date" shall mean each business day on which the
financial markets are open for trading activity, or such other dates as shall be
established by the Committee.
ARTICLE II
ELIGIBILITY
Participation in the Plan shall be made available to a select group of
highly compensated employees who are pilots employed by the Company, the
identity of such eligible pilots to be determined by the Committee. The
Committee shall, in a timely manner, notify those pilots whom it has determined
to be eligible to participate in the Plan. Such eligible individuals may elect
to participate hereunder in the manner prescribed by the Committee no later than
the last day of December immediately preceding the Plan Year for which an
individual elects to have contributions credited to an Account in accordance
with the provisions of Section 3.1 hereof. The determination as to the
eligibility of any individual to participate in the Plan shall be in the sole
and absolute discretion of the Committee, whose decision in that regard shall be
conclusive and binding for all purposes hereunder.
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ARTICLE III
CREDITS TO ACCOUNT
3.1. For any Plan Year, a Participant who elects to contribute to the
401(k) Plan the lesser of: (i) the maximum elective deferral permitted under
Section 402(g)(1) of the Code with respect to the taxable year in which such
Plan Year begins, or (ii) the maximum elective contributions permitted under the
terms of the 401(k) Plan with respect to such Plan Year, may, in the manner
prescribed by the Committee, irrevocably elect to defer a whole percentage of
the Annual Compensation otherwise payable to such Participant with respect to
such Plan Year, not to exceed the maximum amount established by the Committee.
Any amounts withheld, pursuant to this Section 3.1, from the Annual Compensation
otherwise payable to a Participant shall be credited to the Account of such
Participant as soon as practicable after the date on which such amounts would
otherwise have been paid.
3.2. For each Plan Year, as soon as practicable after the Company funds
its contribution to the ProfitSharing Plan for the preceding Plan year, the
Company shall credit a profit sharing contribution to the Account of each
Participant who has deferred amounts under the Plan during such Plan Year in
accordance with the provisions of Section 3.1 above. The profit sharing
contribution credited on behalf of any Participant for a Plan Year shall be an
amount equal to the profit sharing contribution, if any, which such Participant
failed to receive under the ProfitSharing Plan for the preceding Plan Year
solely as a result of participation in this Plan.
3.3. For each Plan Year, as soon as practicable after the Company funds
its contribution to the ProfitSharing Plan for the preceding Plan Year, the
Company shall credit a matching contribution to the Account of each Participant
who has deferred amounts under the Plan during such Plan Year in accordance with
the provisions of Section 3.1 above. The matching contribution credited on
behalf of any Participant for a Plan Year shall be an amount equal to the
matching contribution, if any, which such Participant failed to receive under
the 401(k) Plan for the preceding Plan Year solely as a result of participation
in this Plan.
3.4. As of each Valuation Date, the Committee shall credit to each
Participant's Account the deemed income or losses attributable thereto, as
provided below, as well as any other credits to or charges against such Account,
including such Participant's pro rata portion of Plan administrative expenses.
All payments from an Account between Valuation Dates shall be charged against
the Account as of the preceding Valuation Date. Each Participant's Account shall
be credited with the amount of income, gains and losses attributable thereto, as
if the amounts credited to such Account had been invested in an investment fund
or funds selected by the Committee. The Committee shall notify the Participants
of the investment fund or funds selected to establish the rate of return
hereunder. The Committee shall be authorized at any time and from time to time
to prospectively modify such investment fund or funds. In the event a
modification occurs, the Committee shall notify the Participants prior to the
effective date of such change. The Committee shall not be
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obligated to substitute funds with similar investment criteria for existing
funds, nor shall it be obligated to continue the same type of investment fund or
funds.
ARTICLE IV
BENEFITS
4.1. Upon the death of a Participant, the Beneficiary of such
Participant shall be entitled to the entire value of all amounts credited to
such Participant's Account, as of the Valuation Date coincident with or
preceding the date of distribution.
4.2. Upon a Participant's termination of employment or, if earlier,
attainment of Mandatory Retirement Age, such Participant shall be entitled to
the entire value of all amounts credited to the Account of such Participant, as
of the Valuation Date coincident with or preceding the date of distribution.
ARTICLE V
PAYMENT OF BENEFITS
5.1. Payment of a Participant's benefit on account of the attainment of
Mandatory Retirement Age or termination of employment shall be made either in a
lump sum in cash, or in cash payments in annual installments over a period
certain not exceeding five (5) years, such method of payment to be irrevocably
elected by the Participant upon initial participation in the Plan in the manner
prescribed by the Committee; provided, however, that payment will be made in a
lump sum in any event if, at the time distribution of the Account is to
commence, the amount credited to the Account is $25,000 or less. Furthermore,
notwithstanding the commencement of installment payments under this Section 5.1,
all remaining amounts credited to a Participant's Account shall be distributed
in a lump sum in cash, at such time as the value of such remaining amounts is
$25,000 or less. Payment shall commence at the time specified by the Participant
upon initial participation in the Plan, which may be as soon as practicable
following the Participant's termination of employment with the Company or, if
earlier, attainment of Mandatory Retirement Age, and during the calendar year in
which such event occurs or, if so elected by the Participant, as soon as
practicable during the calendar year following the year in which such event
occurs. If installment payments are made, the Committee shall continue to credit
the unpaid balance of the Participant's Account with the deemed income and
losses attributable thereto, in accordance with the provisions of Section 3.4
hereof, as well as with any other credits to or charges against the unpaid
balance of such Account, during the period for which installment payments are
made.
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5.2. Payment of a Participant's benefit on account of death shall be
made in a lump sum in cash. Payment of a Participant's death benefit shall be
made to the Beneficiary of such Participant as soon as practicable following the
Committee's receipt of proper notice of such Participant's death.
5.3. Notwithstanding the provisions of sections 5.1 or 5.2, the
benefits payable hereunder may be paid before they would otherwise be payable
if, based on a change in the federal or applicable state tax or revenue laws, a
published ruling or similar announcement issued by the Internal Revenue Service,
a regulation issued by the Secretary of the Treasury, a decision by a court of
competent jurisdiction involving a Participant or a Beneficiary, or a closing
agreement made under Section 7121 of the Code that is approved by the Internal
Revenue Service and involves a Participant, the Committee determines that a
Participant has or will recognize income for federal or state income tax
purposes with respect to amounts that are or will be payable under the Plan
before they otherwise would be paid. The amount of any payments pursuant to this
Section 5.3 shall not exceed the lesser of: (a) the amount in the Participant's
Account or (b) the amount of taxable income with respect to which the tax
liability is assessed or determined.
5.4. The payment of benefits under the Plan shall begin at the date
specified in accordance with the provisions of Sections 5.1 and 5.2 hereof;
provided that, in case of administrative necessity, the starting date of payment
of benefits may be delayed up to thirty (30) days as long as such delay does not
result in the Participant or Beneficiary receiving the distribution in a
different taxable year than if no such delay had occurred.
ARTICLE VI
IN-SERVICE WITHDRAWALS AND LOANS
6.1. In the event of an unforeseeable emergency, a Participant may make
a request to the Committee for a withdrawal from the Account of such
Participant. For purposes of this Section, the term "unforeseeable emergency"
shall mean a severe financial hardship to the Participant resulting from a
sudden and unexpected illness or accident of the Participant or of a dependent
(as defined in Section 152(a) of the Code) of the Participant, loss of the
Participant's property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of
the Participant. Any determination of the existence of an unforeseeable
emergency and the amount to be withdrawn on account thereof shall be made by the
Committee, in its sole and absolute discretion. However, notwithstanding the
foregoing, a withdrawal will not be permitted to the extent that the financial
hardship is or may be relieved: (i) through reimbursement or compensation by
insurance or otherwise; (ii) by liquidation of the Participant's assets, to the
extent that liquidation of such assets would not itself cause severe financial
hardship; or (iii) by cessation of deferrals under this Plan. In no event shall
the need to send a Participant's child to college or the desire to purchase a
home be deemed to constitute an unforeseeable emergency. No member of the
Committee shall vote or decide upon any matter relating to the determination of
the existence of such member's own financial hardship or the amount to be
withdrawn on account thereof. A request for
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a hardship withdrawal must be made in the manner prescribed by the Committee,
and must be expressed as a specific dollar amount. The amount of a hardship
withdrawal may not exceed the amount required to meet the severe financial
hardship. All hardship withdrawals shall be paid in a lump sum in cash.
6.2. A Participant may, prior to the beginning of any Plan Year, in the
manner prescribed by the Committee, request an in-service withdrawal of all or a
portion of any amounts which have been credited to the Account of such
Participant pursuant to Article III hereof for at least three (3) calendar years
as of the beginning of such Plan Year, together with any income attributable
thereto; provided, however, that the amount of any such withdrawal shall never
exceed such credited amounts, as adjusted for any deemed income or losses
attributable thereto. Such request must set forth the specific dollar amount to
be withdrawn and the time at which payment is to be made. The Committee, in its
sole and absolute discretion, shall, upon review of the facts pertinent to such
request, determine whether the withdrawal request shall be approved. No member
of the Committee shall vote upon, decide, or participate in any other way in a
decision involving a withdrawal request of such Committee member. Any withdrawal
under this Section 6.2 shall be made in a single lump sum, in cash.
6.3. Notwithstanding any other provision herein to the contrary, a
Participant may elect at any time, in the manner prescribed by the Committee, to
accelerate the date on which payment of such Participant's benefit hereunder
would otherwise be made. Upon such election, the amount to which such
Participant is entitled shall be ninety percent (90%) of the benefit otherwise
payable hereunder, which shall be distributed in one lump sum, in cash, as soon
as administratively practicable following such election.
6.4. Withdrawals shall be charged pro rata to the investment options in
which amounts credited to a Participant's Account are deemed to be invested,
pursuant to Section 3.4 hereof.
6.5. In no event may a Participant receive a loan of any portion of his
benefit hereunder.
ARTICLE VII
ADMINISTRATION OF THE PLAN
7.1. The Plan shall be administered by the Committee. The members of
the Committee shall not receive compensation with respect to their services for
the Committee. The members of the Committee shall serve without bond or security
for the performance of their duties hereunder unless applicable law makes the
furnishing of such bond or security mandatory or unless required by the Company.
Any member of the Committee may resign by delivering a written resignation to
the Company and to the other members of the Committee.
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7.2. The Committee shall perform any act which the Plan authorizes
expressed by a vote at a meeting or in a writing signed by a majority of its
members without a meeting. The Committee may, by a writing signed by a majority
of its members, appoint any member of the Committee to act on behalf of the
Committee. Any person who is a member of the Committee shall not vote or decide
upon any matter relating solely to such member or vote in any case in which the
individual right or claim of such member to any benefit under the Plan is
particularly involved. If, in any matter or case in which a person is so
disqualified to act, the remaining persons constituting the Committee cannot
resolve such matter or case, the Board will appoint a temporary substitute to
exercise all the powers of the disqualified person concerning the matter or case
in which such person is disqualified.
7.3. The Committee may designate in writing other persons to carry out
its responsibilities under the Plan, and may remove any person designated to
carry out its responsibilities under the Plan by notice in writing to that
person. The Committee may employ persons to render advice with regard to any of
its responsibilities. All usual and reasonable expenses of the Committee shall
be paid by the Company. The Company shall indemnify and hold harmless each
member of the Committee from and against any and all claims and expenses
(including, without limitation, attorney's fees and related costs), in
connection with the performance by such member of duties in that capacity, other
than any of the foregoing arising in connection with the willful neglect or
willful misconduct of the person so acting.
7.4. The Committee shall establish rules and procedures, not contrary
to the provisions of the Plan, for the administration of the Plan and the
transaction of its business. The Committee shall determine the eligibility of
any individual to participate in the Plan, shall interpret the Plan in its sole
and absolute discretion, and shall determine all questions arising in the
administration, interpretation and application of the Plan. All determinations
of the Committee shall be conclusive and binding on all employees, Participants
and Beneficiaries, subject to the provisions of this Plan and applicable law.
7.5. Any action to be taken hereunder by the Company shall be taken by
resolution adopted by the Board or by a committee thereof; provided, however,
that by resolution, the Board or a committee thereof may delegate to any officer
of the Company the authority to take any such actions hereunder, other than the
power to amend or terminate the Plan.
ARTICLE VIII
CLAIMS REVIEW PROCEDURE
8.1. In the event that a Participant or Beneficiary is denied a claim
for benefits under this Plan (the "Claimant"), the Committee shall provide to
the Claimant written notice of the denial which shall set forth:
(a) the specific reason or reasons for the denial;
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(b) specific references to pertinent Plan provisions on which the
Committee based its denial;
(c) a description of any additional material or information needed
for the Claimant to perfect the claim and an explanation of
why the material or information is needed;
(d) a statement that the Claimant may:
(i) Request a review upon written application to the
Committee;
(ii) Review pertinent Plan documents; and
(iii) Submit issues and comments in writing; and
(e) That any appeal the Claimant wishes to make of the adverse
determination must be in writing and received by the Committee
within sixty (60) days after receipt of the Committee's notice
of denial of benefits. The Committee's notice must further
advise the Claimant that failure to appeal the action to the
Committee in writing within the sixty (60) day period will
render the Committee's determination final, binding, and
conclusive.
8.2. If the Claimant should appeal to the Committee, the Claimant, or
the duly authorized representative of such Claimant, may submit, in writing,
whatever issues and comments such Claimant, or the duly authorized
representative of such Claimant, feels are pertinent. The Committee shall
re-examine all facts related to the appeal and make a final determination as to
whether the denial of benefits is justified under the circumstances. The
Committee shall advise the Claimant in writing of its decision on the appeal,
the specific reasons for the decision, and the specific Plan provisions on which
the decision is based. The notice of the decision shall be given within sixty
(60) days of the Claimant's written request for review, unless special
circumstances (such as a hearing) would make the rendering of a decision within
the sixty (60) day period infeasible, but in no event shall the Committee render
a decision regarding the denial of a claim for benefits later than 120 days
after its receipt of a request for review. If an extension of time for review is
required because of special circumstances, written notice of the extension shall
be furnished to the Claimant prior to the date the extension period commences.
The Committee's notice of denial of benefits shall identify the address to which
the Claimant may forward an appeal.
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ARTICLE IX
LIMITATION OF RIGHTS
The establishment of this Plan shall not be construed as giving to any
Participant, employee of the Company or any person whomsoever, any legal,
equitable or other rights against the Company, or its officers, directors,
agents or shareholders, or as giving to any Participant or Beneficiary any
equity or other interest in the assets or business of the Company or shares of
Company stock or as giving any employee the right to be retained in the
employment of the Company. All employees of the Company and Participants shall
be subject to discharge to the same extent they would have been if this Plan had
never been adopted. The rights of a Participant hereunder shall be solely those
of an unsecured general creditor of the Company.
ARTICLE X
LIMITATION OF ASSIGNMENT AND PAYMENTS TO
LEGALLY INCOMPETENT DISTRIBUTEE
10.1. No benefits which shall be payable under the Plan to any person
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose
of the same shall be void. No benefit shall in any manner be subject to the
debts, contracts, liabilities, engagements or torts of any person, nor shall it
be subject to attachment or legal process for or against any person, except to
the extent required by law.
10.2. Whenever any benefit which shall be payable under the Plan is to
be paid to or for the benefit of any person who is then a minor or determined by
the Committee, on the basis of qualified medical advice, to be incompetent, the
Committee need not require the appointment of a guardian or custodian, but shall
be authorized to cause the same to be paid over to the person having custody of
the minor or incompetent, or to cause the same to be paid to the minor or
incompetent without the intervention of a guardian or custodian, or to cause the
same to be paid to a legal guardian or custodian of the minor or incompetent, if
one has been appointed, or to cause the same to be used for the benefit of the
minor or incompetent.
ARTICLE XI
AMENDMENT TO OR TERMINATION OF THE PLAN
The Company reserves the right at any time to amend or terminate the
Plan in whole or in part by resolution of the Board. No amendment shall have the
effect of retroactively changing or depriving Participants or Beneficiaries of
rights already accrued under the Plan. Upon termination
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of the Plan, the Board may, in its sole and absolute discretion, and
notwithstanding any other provision hereunder to the contrary, direct that all
benefits hereunder will be paid as soon as administratively practicable
thereafter.
ARTICLE XII
STATUS OF PARTICIPANT AS UNSECURED CREDITOR
All benefits under the Plan shall be the unsecured obligations of the
Company. No assets will be placed in trust or otherwise segregated from the
general assets of the Company for the payment of obligations hereunder. To the
extent that any person acquires a right to receive payments hereunder, such
right shall be no greater than the right of any unsecured general creditor of
the Company.
ARTICLE XIII
GENERAL AND MISCELLANEOUS
13.1. Severability. In the event that any provision of this Plan shall
be declared illegal or invalid for any reason, said illegality or invalidity
shall not affect the remaining provisions of this Plan but shall be fully
severable and this Plan shall be construed and enforced as if said illegal or
invalid provision had never been inserted herein.
13.2. Construction. The Section headings and numbers are included only
for convenience of reference and are not to be taken as limiting or extending
the meaning of any of the terms and provisions of this Plan. Whenever
appropriate, words used in the singular shall include the plural or the plural
may be read as the singular.
13.3. Governing Law. The validity and effect of this Plan and the
rights and obligations of all persons affected hereby shall be construed and
determined in accordance with the laws of the State of Texas unless superseded
by federal law.
13.4. No Requirement to Fund. The Company is not required to set aside
any assets for payment of the benefits provided under this Plan. A Participant
shall have no security interest in any amounts credited hereunder on such
Participant's behalf. It is the Company's intention that this Plan be construed
as a plan which is unfunded and maintained primarily for the purpose of
providing deferred compensation for a select group of highly compensated
employees.
13.5. Taxes. All amounts payable hereunder shall be reduced by any and
all federal, state and local taxes imposed upon the Participant or a Beneficiary
which are required to be paid or withheld by the Company.
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IN WITNESS WHEREOF, Southwest Airlines Co., the Company, has caused its
corporate seal to be affixed hereto and these presents to be duly executed in
its name and behalf by its proper officers thereunto duly authorized this 20th
day of November, 1998.
COMPANY:
SOUTHWEST AIRLINES CO.
By: /s/ Herbert D. Kelleher
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ATTEST:
/s/ Colleen C. Barrett
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(Title)
[CORPORATE SEAL]
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