Chapter 11 Bankruptcy & Terminated Retiree Benefits

When a business declares bankruptcy, there can be no promises that retiree benefits will not be terminated. Your benefit plan may stipulate what will happen to your plan in the event of bankruptcy and it may also be protected by federal law.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy consists of a business being restructured under supervision, rather liquidated. Because the business will still be operating, but under entirely different circumstances, retirement benefits may or may not be terminated.

Protected Benefits

Federal law provides pensions with some protection. When an employee declares bankruptcy, funds for pensions cannot be used as payment to creditors. Also, as an employee, you are owed all retirement benefits you've earned up to that point, regardless of how matters are handled.

Federal Insurance

The federal government insures standard retirement plans. If your employer cannot fund your plan, a federal government corporation will make payments temporarily. This insurance does not apply to 401(k) plans.

References

• U.S. Department of Labor: Your Employer's Bankruptcy - How Will It Affect Your Employee Benefits?