As an employee earning benefits you expect that after you reach the retirement age you will receive these monies and use them to live comfortably in your sunset years. That is how it should be, but what happens to your benefits when your employer goes bankrupt?
What should be your plan of action related to securing your benefits?
The Employee Retirement Income Security Act (ERISA) is administered by the Employee Benefits Security Administration (EBSA), which is a component of the Department of Labor. ERISA administers retirement plans – including the 401(k) and profit sharing plans as well as life insurance, health and disability plans. Also under ERISA are the Health Insurance Portability and Accountability Act (HIPAA) and the Consolidated Omnibus Budget Reconciliation Act (COBRA).
These different laws and groups are important to understand when discussing the issue of your benefits when your employer goes bankrupt.
1Forms of Bankruptcy and How They Can Affect Your Benefits
An employer’s declaration of bankruptcy may take one of two forms - reorganization or liquidation. Reorganization is covered under Chapter 11 of the Bankruptcy Code, while liquidation is covered under Chapter 7.
The reorganization form usually implies that a business is allowed to continue its operations under the Court’s protection in a bid to normalize its financial affairs.
The liquidation form of bankruptcy is where a company is required to sell off its assets so they can pay their creditors. In effect, the business no longer exists.
Under reorganization bankruptcy, your health or pension plans may or may not be affected but in liquidation bankruptcy, it is most likely that these plans will be terminated.
2Steps of Action After Your Employer Files For Bankruptcy
If this happens, you should immediately get in touch with each of your plans administrators or with your union representative if applicable. In your communication, you should request for a description of the current status of your benefits and plans.
3Questions To Ask
The following are some of the questions you should get answers to when talking with plan administrators:
• Whether the plan will continue or be terminated
• Who the plan administrator will be during and after the bankruptcy
• Who the trustee in charge of the pension plan will be
• How the accrued benefits will be paid in the event that the pension plan is terminated
• Whether or not COBRA continuation coverage will be offered to employees whose jobs have been terminated
• In the event of the termination of your health plan – how will outstanding claims be settled, and how certificates of credible coverage will be issued
4Get the Details Right
It is imperative f...