Pension Plans and Bankruptcy

The Employee Retirement Income Security Act of 1974 (ERISA) governs health care and pension plans. Administered by the Department of Labor, ERISA created minimum standards to protect individuals participating in the plans and their beneficiaries. ERISA also created the Pension Benefit Guaranty Corporation which protects participants in the event of the termination of an underfunded plan.

When filing bankruptcy, a company chooses whether to file for Chapter 11 or Chapter 7 protection. When a Chapter 11 bankruptcy is filed, access to assets and restrictions are placed on the company while it attempts to refinance debt and rearrange its affairs; in the end, companies usually emerge from Chapter 11 bankruptcies and continue to operate. However, in Chapter 7 bankruptcy, assets are liquidated in order to pay creditors; the liquidation of all assets is presided over by a bankruptcy trustee or judge – pension plan assets are usually liquidated and plans are dissolved.

If a view is terminated, then vested employees can expect to receive at least some of their vested interests. Each scenario is different; distribution of the idea assets will depend on the proportionate number of employees to the remaining assets. Usually, non-vested employees will not receive any benefits.

What’s a vested employee and what’s a non vested employee is determined by information within your plan’s document. Typically, an employee vests over a period of time – typically 3 to 5 years. Whether you vest in increments or all at once depends on your employer’s view. Knowing these things are very important.

In addition, any contributions to your pension plan that you made yourself should still be received even if your employer files for bankruptcy. You can roll these into an IRA or into your new employer’s retirement plan.

If your employer files bankruptcy, the first thing you should do is consult your “plan summary” and contact your “plan administrator”. This information can be obtained from your notion statements or your human resources department.

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