From time to time you hear about a sham marriage, but here's a new one: Continental Airlines recently sued nine of its pilots and their spouses for engaging in what the company calls “sham divorces.” The pilots and their spouses allegedly obtained divorces, temporarily, in order to collect a lump sum from their pilots-only pension plan.
They were worried that the plan could be taken over by the Pension Benefit Guaranty Corporation (PBGC), in which case their benefit would have been much less than they had accrued in the pension plan. According to the Houston Chronicle, which reported on the lawsuit May 23, 2009, the pilots and their spouses were concerned that Continental could file for bankruptcy, as had happened with Delta, United, and US Airways.
In those cases, pension plans were taken over by the PBGC and participants lost substantial amounts of plan benefits. The PBGC's maximum periodic benefit at age 65 is now $54,000 annually. Continental alleges that each of the nine pilots collected up to $900,000 in a lump sum by divorcing their spouse and then signing over all rights to the benefit to the former spouse.
Under the terms of the plan, the pilots would have had to wait until retirement before collecting the pension. The ex-spouses then completed the paperwork requesting a lump sum distribution. The couples continued to live together, and remarried without telling friends or family of their situation. Plan fiduciaries are required by ERISA to take action to protect the plan's assets; they have asked a judge to force the pilots and spouses to repay the plan. At this writing, none of the money has been repaid, although one pilot signed an agreement to do so.
Source: Houston Chronicle