Flying High On Pension Benefits

Continental Airlines Inc. found out that several of its pilots obtained divorces to receive  benefits, concealed the divorces from their friends and families and later re-married after receiving the benefits.  Although the airline pursued action, the Court of Appeals for the 5th Circuit held on July 18, that Continental Airlines Inc. cannot recover lump sum pension plan benefits paid to pilots who allegedly got “sham divorces” in order to obtain payment of their benefits under the Employee Retirement Income Security Act. If a pilot is at least 50 years old, the pilot can assign his or her benefits to an ex-spouse, who in turn can then elect to receive those benefits regardless of whether or not the pilot is retired. 

The airline alleged that pilots created this scheme because of fears that financial difficulties would result in their pension plans being taken over by the Pension Benefit Guaranty Corporation, that their benefits would be reduced upon retirement, and that the lump-sum option would become unavailable . The Court’s reasoning for denying relief to the airline is that it doesn’t want pension administrators to second guess state family court determinations.

This decision is somewhat surprising. Putting aside for a moment that the reasoning seeks to respect a court’s divorce decision and give it full discretion, it also seems fraudulent. What’s really going on here? Is it a loophole to be taken advantage of or a deceitful plot to early payment of benefits? Isn’t it an unnecessary strain on court resources to have fake divorces and subsequent remarriages? Looks like the airline is out of luck and the pilots are flying high on their benefits.

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