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Swissair & the case of the 'Accidental' Tontine

When Swissair went bankrupt in 2001 the employee pension fund was run independently and the pension fund had so much cash.

Swissair & the case of the 'Accidental' Tontine

When Swissair went bankrupt in 2001, its current & former employees were extremely fortunate that it’s pension plan was independent of the operating companies. This protected the pension assets from airline’s creditors although it also essentially orphaned the scheme by removing the sponsor.

The airline had offered pensions to flying staff, ground staff & senior management & the plan was reasonably well funded & even 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%. What does this mean you ask? Well, this is the accidental tontine. Meaning that if trustees continued the original fixed payouts then the last surviving participant could likely receive a payout of 400m Swiss Francs (€370m). However, rather than treating the last survivor like a winner-takes-all €370m lottery winner, the trustees agreed it would be fairer to keep increasing the payouts of all of the members every year ensuring that everyone wins. As a result, these pensioners are now enjoying what has been described as 'The Golden Retirement of Swissair Employees'.

In 2016, on top of their fixed payouts, members received bonus payouts of 7,050 CHF (€6,500). By 2017 the bonus had doubled to 16,450 CHF (€15,250). It is 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. They are definitely not worried about ever running out.

Now I don't know about you ladies and gentlemen, but I think this is exactly how retirement should be.


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