Airline Alleges Sham Divorces are Pension Scam
The Houston-based carrier has fired or accepted the resignations of eight of the nine senior pilots-“The one exception … recanted his fraud and signed an agreement to make restitution to the plan and consequently was reinstated to active employment,” Continental said in its lawsuit filed last week in federal district court in Houston, according to the Houston Chronicle.
“The law requires that Continental and other fiduciaries of the pension plan take appropriate steps to protect pension assets,” Continental spokeswoman Julie King told the Chronicle.
“Paper-Only”
Continental alleges the pilots and their spouses got “paper-only” divorces while continuing to live together and concealing the change in their marital status from their children and friends. Then, once a state court approved the divorces, the pilots signed court-issued documents giving their new ex-spouses all rights to a pilots-only pension plan, worth up to $900,000 per individual participant, according to the report. At that point, the spouses presented the paperwork to the Continental pension plan administrator with a request for a lump-sum distribution.
Continental alleges that after getting the money, the couples remarried. In its lawsuit, Continental suggested that the pilots ? – seven men and two women ? – were concerned about losing significant parts of their pensions because of the financial difficulties the airline industry was encountering. That, coupled with the reality that the maximum annual pension guaranteed by the Pension Benefit Guaranty Corp. (PBGC) is far less than a typical airline pilot pension (this year, for a 65-year-old person, the maximum is $54,000 – see PBGC Announces New Maximum Benefit for Terminating Plans ).
Not the First Time
The Chronicle notes that attorneys for UAL Corp., the parent of United Airlines, sought advice in 1999 from the U.S. Department of Labor about whether the company had to accept divorce documents it believed to be “questionable or sham in nature.” That question arose after 21 United maintenance workers in Indianapolis were accused of defrauding the retirement plan by following steps laid out in a pamphlet called the Retirement Liberation Handbook, which gave instructions on how to use divorce to acquire benefits prior to retirement. According to the Chronicle, at that time the Labor Department told UAL that it was “not free to ignore” information that calls into question the validity of court documents that divide up marital property and should alert state authorities about its concerns.
Continental sent copies of the lawsuit to the Secretary of Labor and the Secretary of the Treasury, according to the report.