In a recent federal court case, a federal judge dismissed Continental Airlines’ lawsuit against 9 of its employees alleging in essence that the employees faked their divorces so that they could loot the pension plan by obtaining early lump sum retirement benefits.
According to the Houston Chronicle, Continental argued in pleadings before the Court that the defendant employees got divorced, collected their pensions and then remarried their spouses in order to collect the money in lump sums while they were still working.
The Continental pension plan, governed by federal law, allows pre-retirement payments to former spouses. Once divorced, the pilots' ex-spouses used this provision to collect lump-sum distributions of the pilots' pension plans, worth up to $900,000 per pilot. In its lawsuit, Continental called the divorces “subterfuges or sham transactions.”
In dismissing the Continental lawsuit against the employees, U.S. District Judge Gary Miller seems to acknowledge the sham. The Associated Press story quotes Judge Miller as saying: "the facts show, and the pilots do not seem to contest, that the pilots and their former spouses did not behave in a manner consistent with the breakup of a marriage." He said many of the pilots continued to cohabitate, remarried soon after obtaining the lump-sum payout and all essentially conducted themselves as if the divorce had never happened.”
Yet, Judge Miller found that Continental’s pension administrator has no right to consider the legitimacy of a divorce in deciding whether to distribute benefits. He said "the administrator may not refuse to qualify a domestic relations order based on criteria not present in the statute." The judge added that "the court finds that the motivation or good faith of the divorce and resulting domestic relations order is not an enumerated requirement."
Apparently Continental is considering an appeal. The case is of interest on a number of levels. Many familiar with this case have no sympathy for Continental. After all, Continent along with other airlines dumped their pension plans onto the Federal Pension Benefit Guaranty Corporation 4-5 years ago; thus, paying out far less than they should. Yet, the case is about more than those who may have been wronged by Continental for dumping its pension plan on the guaranty fund.
Our country has far too few pension plans these days. If employees can loot their pension plans because of a technicality, i.e., that pension plan administrators have no authority to review the legitimacy of someone’s divorce, those few people lucky enough to have a pension, are put in further jeopardy –beyond the jeopardy of bankrupt businesses that pass pension obligations to the guaranty fund.
Surely our legal system has the ability to stop shams.
Written by Carol L. Gasper, Attorney at Law, clg@clgasperlaw.com
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