Posted on 07/20/2011 6:26:31 AM PDT by rawhide
DALLAS — In a case involving Continental Airlines, a federal appeals court says benefit administrators don't have the power to decide whether employees' divorces are real or fake.
Continental sued nine of its pilots, claiming that they got "sham" divorces so their ex-spouses could tap their lump-sum pensions while they still worked for the airline — then remarried the same partners.
The 5th U.S. Circuit Court of Appeals on Monday upheld a lower-court ruling that employers can't consider or investigate why employees get divorced or whether the divorce is genuine. The appeals court dismissed Continental's 2009 lawsuit, which was filed in federal district court in Houston.
A Continental spokeswoman said the airline was reviewing the ruling before deciding its next step.
Steve Mitby, an attorney for five of the pilots, called the decision "a victory for employee privacy rights — nobody wants their employer looking into their divorce."
Mitby said all the pilots were fired or resigned, and they are suing Continental in federal court in Houston for wrongful termination and interfering with their pension rights.
The airline, now owned by United Continental Holdings Inc., had said it paid out $10 million to $11 million in pension distributions that pilots had assigned to their spouses.
According to Continental court filings, the pilots — seven men and two women — got divorces in states where domestic-relations orders assigned all or nearly all of their retirement benefits to their ex-spouses, who then demanded payment.
The airline charged that the pilots were taking advantage of a provision in federal law that, in cases of divorce, allows payment of pension benefits to an ex-spouse before a worker retires. Continental argued that the pilots were worried that the airline might turn over its pension obligations to the government — as other airlines did in the 2000s — leaving them with reduced benefits.
In a footnote, the appeals court said a retirement plan administrator might be able to recover a pension payment if a court ruled that a divorce was a sham, but that didn't happen in the Continental case
I think it truly is a scam run by the pilots. Have heard of this benefit scam before.
It is interesting. Aside from the privacy issue, there’s the motivation issue of why the plan rules were considered a big enough hassle, or unfair enough, that a significant number of pilots thought it worthwhile going through the hassle of allegedly sham divorces.
The rules may have wanted the plans kept intact for the long-term good of the pilots. But, I suspect an issue was the cash drain of the payouts on underfunded pensions. I wonder...
Maybe so. But....not sure how I feel about this. I kinda understand why the pilots did what they did. It seems to be a smart tactic on their part to get what was coming to them. Whether ethical or not, I’ll let others decide.
Besides wouldn't there have to be actual damage before fraud could be charged? Lump sum is usually smaller then timed payout and the company is not arguing that the pilots were not due... they are just saying they got it sooner then the company wanted to pay.
Now they are off the books and the company no longer has a future liability hanging over them. Where are the damages?
I’ve employed people for most of my career. People will lie cheat and steal from whomever they work for without a trace of shame. I’ve always felt if you want to see the worse in humans - employ them.
“Continental argued that the pilots were worried that the airline might turn over its pension obligations to the government — as other airlines did in the 2000s — leaving them with reduced benefits. “
Sounds like they had a real fear.
If these pilots ex-spouses were able to receive 10-11 million dollars right away vs. 5-6 millions dollars later (just surmising what the government would have gave the,. Probably would have been less than what I surmised), then it is kinda hard to blame the pilots for taking advantage of this.
Well, in this case, you are employed with part of the provisions and benefits being a promised future pension. However, these guys were seeing other airlines exercising the ability to break these promises - in multiple cases, IIRC. So instead, these people exercised an option to protect their interests and enforce what had been promised.
I think it’s kind of extreme, but I’m hard-pressed to find a bad guy here.
I agree with your post.
They are just trying to stop the scam by management that negotiated contracts they could not keep with the full intention of one day leaving the tax payer with the bill. HARD TO TAKE SIDES ON THIS ONE.
Ask the pilots and other employees of United Air Lines who lost half of their retirement when UAL went bankrupt a few years ago. Its not your money til you have it in your hands and not even then with the Marxists in power.
How dare you try to cheat the airline to get your contracted benefits before the airline cheats you to abandon your benefits.
Companies use bankruptcies, mergers and outright breach of contract so often that I dislike being paid monthly instead of weekly or daily, much less relying on one to still be around and willing to pay me decades from now when I retire. I want a private account in my name, not in the company's name.
It is a good argument in favor of doing away with pensions in favor of 401ks
Treat them all the same, and let them work it out.
A different question would be - what are the statistics on remarrying a spouse? I know of 2 cases recently (among people I know). One was a couple that divorced, was forced back together because child support and rent just didn’t allow money to live, moved back in, remarried. Another was a true reconciliation by the church, daughter could joke she liked her step dad as her real dad.
I believe the money has already been put into an account. The Airline administers it but they do not have access to it.
Most regulations concerning these accounts are mandated by the government (although some leeway is given to the administrator). The rules are set up to make it difficult for an employee to withdraw the money since the purpose is to provide the employee has some retirement.
By finding a way around the rules does not hurt the employer but the employee as they are robbing from their own future. Sort of like someone that cheats their way through school without really learning anything. They in the end are the ones that will be hurt.
You do not understand who got cheated. Their pilot comrades got reduced benefits because of this maneuver. The pension assets were not adequate to provide promised benefits. These pension plans were shams demanded by labor cartels and existing on failed assumptions. I do not understand why benefits were disbursed before the normal retirement age. Divorce provides a division of assets but retirement assests are deferred compensation so I am not sure how spouses got the assets before the retirement conditions were reached.
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