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Employees of bankrupt companies have homework

02.11.09
By Gerri Detweiler

While unemployment can be stressful, employees laid off due to the bankruptcy of their employer's firm should be prepared for some additional homework. In particular, employees receiving pension or health benefits must investigate how those benefits may be affected.

Most firms will either file a bankruptcy under Chapter 11 of the Bankruptcy Code (a "reorganization" plan), or liquidation under Chapter 7, also referred to as "straight bankruptcy".

According to the American Bankruptcy Institute, there were nearly 30,000 business bankruptcies in the first three quarters of 2008. That figure does not indicate the type of filing, nor how many employees were affected.

In a Chapter 11 bankruptcy, an employee's health or pension plan may or may not be affected. In a Chapter 7 bankruptcy, both plans are likely to be terminated.

The Department of Labor's Employee Benefits Security Administration (EBSA) administers the Employee Retirement Income Security Act of 1974 (ERISA), which governs retirement plans (including profit sharing and 401(k) plans) and welfare plans (including health, disability, and life insurance plans). DOL encourages consumers to ask their plan administrator or union representative (if they belong to a labor union) the following questions about their pension and health plans if their employer files for bankruptcy:

  • Will the plan continue or will it be terminated?

  • Who will be acting as plan administrator of the plans during and after the bankruptcy, and who will be the trustee in charge of the pension plan?

  • If the pension plan is to be terminated, how will accrued benefits be paid?

  • Will COBRA continuation coverage be offered to terminated employees? (COBRA allows employees to continue their health insurance plan, typically for up to 18 months, as long as they pay the premiums themselves.)

  • If the health plan is to be terminated, how will outstanding health claims be paid, and when will certificates of creditable coverage be issued? Certificates of credible coverage show, among other things, the dates of enrollment in the employer's health plan. They can be essential for eliminating waiting periods due to pre-existing conditions on new health plans.

Workers who are concerned their company is at risk of going bankrupt should do their homework before this happens. They should investigate other health insurance options if they believe they may need them. For example, can they obtain coverage under a spouse or partner's plan? Is individual health insurance available? Does their state offer access to a plan for those unable to get coverage due to health problems?

Workers should also make sure they have received copies of their pension plan summary report, annual report, and a benefits statement showing the value of their pension benefit (for defined benefit plans). Those with individual retirement account plans should request an individual benefit statement showing how much money is in their retirement account if they have not received that statement already.

Workers should contact their regional EBSA office nearest them if:

  • They are unable to obtain information or documents about their pension or health plan accounts or benefits;

  • They suspect contributions deducted from their paycheck for retirement benefits have not been deposited to the plan, their pension benefits are not safe, or the assets are not prudently invested;

  • They need information and assistance with unpaid health claims or in obtaining a certificate of creditable coverage.

Workers can get help by contacting EBSA electronically at www.askebsa.dol.gov or calling the EBSA toll-free Hotline at 1.866.444.EBSA (3272). More information about the effect of an employer's bankruptcy on pension plans and group health plans is available from the Department of Labor.



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