EMPLOYEE RETIREMENT PLANS

Defined Contribution Plans

Southwest has defined contribution plans covering substantially all of its Employees. Contributions under all defined contribution plans are primarily based on Employee compensation and performance of the Company. The Company sponsors Employee savings plans under section 401(k) of the Internal Revenue Code of 1986, as amended. The Southwest Airlines Co. 401(k) Plan includes Company matching contributions and the Southwest Airlines Pilots Retirement Saving Plan has non-elective Company contributions. In addition, the Southwest Airlines Co. ProfitSharing Plan (ProfitSharing Plan) is a defined contribution plan to which the Company may contribute a percentage of its eligible pre-tax profits, as defined, on an annual basis. No Employee contributions to the ProfitSharing Plan are allowed.

Amounts associated with the Company's defined contribution plans expensed in 2018, 2017, and 2016, reflected as a component of Salaries, wages, and benefits, were $1.0 billion, $1.0 billion, and $937 million, respectively.

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 postretirement benefit obligation ("APBO") for the years ended December 31, 2018 and 2017:



(in millions)	2018			2017
APBO at beginning of period	$	275		$	256
Service cost	18			18
Interest cost	9			11
Benefits paid	(5		)	(8		)
Actuarial gain	(69		)	(2		)
Plan amendments	4			—
APBO at end of period	$	232		$	275

During 2018, the Company recorded a $69 million actuarial gain as a decrease to the APBO with an offset to AOCI. This actuarial gain is 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 gain was the expected per capita costs for future qualifying retirees, which reflects lower expectations based on recent history.

All plans are unfunded, and benefits are paid as they become due. Estimated future benefit payments expected to be paid are $8 million in 2019, $9 million in 2020, $10 million in 2021, $11 million in 2022, $13 million in 2023, and $93 million for the next five years thereafter.

The funded status (the difference between the fair value of plan assets and the projected benefit obligations) of the Company’s consolidated benefit plans are recognized in the Consolidated Balance Sheet, with a corresponding adjustment to AOCI. The following table reconciles the funded status of the plans to the accrued postretirement benefit cost recognized in Other non-current liabilities on the Company’s Consolidated Balance Sheet at December 31, 2018 and 2017.



(in millions)	2018			2017
Funded status	$	(232	)	$	(275	)
Unrecognized net actuarial (gain) loss	(64		)	5
Unrecognized prior service cost	5			4
Accumulated other comprehensive income (loss)	59			(9		)
Cost recognized on Consolidated Balance Sheet	$	(232	)	$	(275	)

The consolidated periodic postretirement benefit cost for the years ended December 31, 2018, 2017, and 2016, included the following:



(in millions)	2018		2017		2016
Service cost	$	18	$	18	$	13
Interest cost	9		11		9
Amortization of prior service cost	3		3		3
Net periodic postretirement benefit cost	$	30	$	32	$	25

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 postretirement benefit plans at December 31, 2018, 2017, and 2016:



	2018		2017		2016
Weighted-average discount rate	4.35	%	3.65	%	4.25	%
Assumed healthcare cost trend rate (a)	7.13	%	7.08	%	7.08	%


(a)	The assumed healthcare cost trend rate is assumed to be 7.13% for 2019, then decline gradually to 5.19% by 2027 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 postretirement obligations to a yield curve created using high quality bonds that closely match those expected future cash flows. This rate increased during 2018 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 healthcare benefits paid and expectations of how those trends may or may not change in future years.