Pensions and Benefits Committee

ABI Committee News

Shedding Legacy Liabilities

Bankruptcy as a Dumping Ground
Some say that chapter 11 proceedings have become a dumping ground for so-called “legacy costs”. For example, when a potential debtor is negotiating debtor-in-possession (DIP) financing, DIP lenders often encourage debtors to eliminate retiree and other types of benefits. At times, DIP lenders condition DIP financing on the termination of significant modifications of these types of plans/benefits. Furthermore, pension plans (not necessarily part of the bankruptcy estate) are often significantly underfunded at the time of the petition and are assumed by the Pension Benefit Guaranty Corp. (PBGC) under a distressed termination. To a large extent, post-petition lenders serve as a driving force for the modification of these benefits, and the provisions of the Bankruptcy Code traditionally have made it fairly routine and easy for debtors to “dump” employee benefits. For example, 11 U.S.C. §1114 generally governs the modification and termination of retiree welfare benefits (life insurance and health insurance). Section 1113 of the Code parallels 1114, but applies to the modification/termination of union contracts. Stock plan obligations, including ESOPs, are generally alleviated through the subordination process under §§510(b) and 510(c) of the Code. Finally, §363 sales allow debtors to sell assets free and clear of most liabilities.

Read the full outline. (Materials from the 2006 Northeast Bankruptcy Conference)

Defined Benefit Pension Plans in Bankruptcy

The Employee Retirement Income Security Act of 1974 (ERISA) was enacted to provide oversight of the management of funds in direct benefit plans and to protect the interests of plan beneficiaries. ERISA pre-empts all state laws relating to employee benefit plans. Among other things, ERISA establishes minimum funding standards for pension plans, provides guidelines for the conduct of plan fiduciaries, establishes the Pension Benefit Guaranty Corp. (PBGC) to guaranty certain employee pension benefits, and provides remedies and access to the federal courts. Employers must pay premiums so that their plans are covered by the PBGC. The termination of plans is also extensively regulated.

Read the full outline. (Materials from the 2006 Southeast Bankruptcy Conference)

Pension and Retiree Claims in U.S. Insolvencies

There are various types of employee and retiree benefit entitlements – with very different rights both in and out of chapter 11. Some of the major categories include “qualified” pension claims and nonqualified pension benefits.

Read the full outline. (Materials from the 2006 New York City Bankruptcy Conference)

Upcoming Live Webinar on the New Pension Law

Learn about the bankruptcy and restructuring impact of the new Pension Protection Act of 2006, just signed in to law.

Click here to get details.