Swissair - The Accidental Tontine

When Swissair went bankrupt in 2001, its current & former employees were at least highly fortunate that its pension plan was independent of the operating companies.

This protected the pension assets from airline’s creditors although it also essentially orphaned the plan by removing the sponsor.

The airline had offered pensions to flying staff, ground staff & senior management and the plan was fully funded and in fact had a surplus.

Swiss regulations and subsequent court orders dictated that the entire plan, including the surplus, be administered for the benefit of plan participants.

Thus, the pension would have to continue investing prudently while dutifully paying the benefits to its participants until the last of them dies.

As of 2018 however, the plan was reported to have a surplus of 24% meaning that if plan administrators maintained the defined benefit payout rates then the last surviving participant could likely receive a payout of 400m Swiss Francs (US$423m).

However, rather than awarding the surplus to a survivor-takes-all lottery winner, the pension administrators decided that a fairer solution would be to operate in a manner consistent with a traditional Tontine pension.

That is, rather than retaining the surplus, the plan spreads the surplus across all of the pensioners over time, gradually raising all of their payouts throughout retirement & thereby ensuring that everyone wins.

As a result of this decision, the pensioners are now enjoying what has been described as The Golden Retirement of Swissair Employees with retirees receiving bonus payouts of 7,050 CHF (US$7,600) in 2016 which more than doubled to 16,450 CHF (US$17,750) in 2017.

With all those surplus funds washing around, it's perhaps no wonder that the former Swissair employees hold their annual gatherings in exclusive ski resorts in the beautiful Swiss mountains, enjoying their retirement together with far less worries about the future than so many other retirees.

After all, this is how retirement should be, and this is also why Tontines are making a comeback.