401(k) Information

 

Fellow Spirit ALPA Pilots,

The following information about the Spirit 401(k) should not be construed as financial advice or legal guidance. This communication has been created to ensure accurate and timely information reaches you.

What is the status of Spirit’s 401(k) plan?

The plan remains active, but only for a short time. We have confirmed with Schwab that termination of the participants (i.e., Pilots) may occur on or around Friday, May 8. Schwab has also confirmed that no further Pilot contributions can occur. Once Schwab receives the termination file, Spirit will begin the process of formally terminating the plan.

Contributions made by Pilots through payroll are 100% vested. For Company contributions, the law provides that upon the termination of a 401(k) plan, all company contributions become fully vested, regardless of any vesting schedule.

When will I be notified of the Spirit 401(k) plan termination?

Communication from the Company announcing termination of the 401(k) plan will likely occur by mid-June.

Should I transfer my 401(k) funds now, or wait for the plan to terminate?

This is a personal decision.

Schwab has relayed that they will be setting up a live resource channel for Spirit Pilots and is exploring other options, including on-demand webcasts, specifically for our Pilots. Please utilize the opportunity to talk with Schwab to fully understand your options.

If you have less than 6 years of service and transfer your 401(k) funds out of the plan before the plan termination date, you lose the ability to have the Company contributions become fully vested.

We highly recommend you consult with a trusted financial advisor before making any decisions.

What about outstanding participant loans?

The 401(k) plan document provides that upon termination of employment, all outstanding participant loans will immediately become due and payable. Should a loan not be repaid within a reasonable period of time, it is offset against the pilot’s account balance and the outstanding loan balance is: (1) treated as a distribution and (2) reported to the IRS on a Form 1099-R. A pilot might avoid the income tax consequences of such a “deemed” distribution by rolling over all or part of the loan’s outstanding balance to an IRA or eligible retirement plan within a time specified by the IRS and reporting the rollover on IRS Form 5498. Consult with a tax advisor or retirement plan specialist for further direction.

What happens to my funds once the Spirit 401(k) plan is terminated?

Carefully review the options provided in communications from Schwab.

Unless you contact Schwab to generate a rollover of your vested funds to another qualified plan or an IRA, a lump sum distribution will be scheduled for delivery to your home address on file. Lump sums not re-directed to a qualified plan or IRA within 60 days of distribution may be subject to penalties and these funds are considered taxable income.

Small account balance amounts under $1,000 are scheduled for automatic lump sum distributions mailed to the Pilot’s home address. Account balances between $1,000 and $7,000 can be rolled over to an individual IRA managed by Schwab or another qualified financial institution within 60 days of distribution. Funds not deposited into a qualified retirement plan or IRA may be subject to penalties, and the funds are considered taxable income. Contact Schwab through your personal retirement plan portal for more detailed information.

But before funds are eligible to be distributed to participants the plan must go through a reconciliation, similar to annual testing, to ensure vesting and contributions from the Company and Pilots are in line with IRS guidelines for a 401(k) plan termination.

Is there a possibility that I might receive a refund of my contributions from the Spirit 401(k) plan?

The short answer is yes, but there are a limited number of Pilots that may be affected. Schwab has given us an example to help illustrate who might be affected:

The IRS compensation limit of $360,000 and the IRS maximum contribution limit of $72,000 for the year must be prorated under IRS guidelines to 5/12/26 of the calendar year totals, or $150,000 and $30,000 respectively. The spreadsheet below best illustrates the possible impact on a Pilot who already contributed $24,500 and received their 8% non-elective contribution of $12,000. 

In the example below, the Pilot would receive a refund of $24,500 - $18,000 = $6,500. Further in the example below, the same methodology can be used to extrapolate a potential refund to Pilots who have maxed out their catch-up contributions. Note that if you have additionally contributed after-tax to your account, your refund could be even higher.

Click here to view larger.

Consider consulting with a trusted financial advisor for further direction. If you do not have a financial advisor, or want in-the-moment financial guidance and/or support when the Spirit 401(k) plan terminates, consider accessing the no-cost ALPA resources through Charles Schwab (https://www.schwab.com/financialconcierge). You can reach an advisor by calling 1-877-648-4719 or using this link (https://www.schwab.com/financialconcierge) and identifying yourself as an ALPA member.

As always, if we learn more from Schwab or the Company, we will share information with you. Shutdown resources and communications can be found on spa.alpa.org/shutdown.