pension contributions during chapter 11 (reorganization) bankruptcy

[Guest kkesq]

Does anyone has any experience with the effect that Chapter 11 (reorganization) has on pension contributions? Specifically, were pension contributions given any type of priority? Was there a distinction between pre and post filing contributions?

[mbozek]

Under bkcy law all obligations are stayed once a petition is filed. Once a plan sponsor goes into bkcy then the db plan will be terminated by the er or the PBGC as a distress terminaton to cease benefit accruals. The PBGC will assert varous claims against the company under Section 507 of the Bkcy law to gain a priority over other creditors. Under section 365(d) of the bkcy law an executory contract can be terminated retroactively to the date of the filing of the bkcy petition. You really need to find a bkcy atty to advise you on this matter.

[MGB]

DB plans do not always terminate under bankruptcy. There are still minimum contribution requirements. Even if the bankruptcy court says to not contribute, you run up funding deficiencies and excise taxes. Many reorganizations come back out of bankruptcy with the DB plan intact and continuing.

[mbozek]

If the company has filed Ch 11 then all obligations including pension contributions will be stayed.If the employer has filed for bankruptcy there is no money to pay pension contribitons. If sponsor does not temrinate plan then PBGC will because of exposure for paying guaranteed benefits if accruals continue. Only exception is if plan is fully funded on current basis which is unlikely in a ch 11 situation because the er usually has been getting funding waivers.

If the plan has accrued funding obligations it is up to the ct to decide what will be paid-- If er is bankrupt then pension plan is an unsecured creditor and plan will be terminated to prevent addtional liabilities being incurred. I dont think the creditors committee would approve of continuing pension accruals/contributions paid by the estate while they get a lower payout. In most workouts the db plan is replaced by a 401(k) plan.

[KJohnson]

This is old, but you may want to look at this link:

http://www.benefitslink.com/reish/bankrupt...port_02.94.html

My recollection is that a pension plan (at least a db plan) cannot be rejected in an 11 like an ordinary executory contract but must terminated according to Title IV of ERISA. Contribuitons coming due after bankruptcy but priro to termination should receive administrative expense priority. You should check 507 of the Bankruptcy Code for priorirties of pre-petition contribuiton claims. I believe that you have a priority (507(a)(4)?) for contributions that accrue during 180 days priror to the filing of bankrutpcy.

[pjkoehler]

KJohnson: In addition, the automatic stay is always subject to a motion for relief from stay, which bankruptcy courts will typically grant to a pension trustee of a defined benefit pension plan if there is no objection from the creditors committee. If a prepackaged reorganization plan is included with petition, i.e. the debtor and the creditors have already worked out a plan, the creditors have an incentive to maintain the proper funding of the plan so as not to further demoralize the employees.