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Home > Resources > Access to Care Resources > Insurance Resources > Bankruptcy & Benefits

Your Employer's Bankruptcy - How Will It Affect Your Benefits?

U.S. Department of Labor SealSource: US Department of Labor

The Department of Labor, Pension and Welfare Benefits Administration (PWBA) administers the Employee Retirement Income Security Act of 1974 (ERISA), which governs pension plans (including profit sharing and 401(k) plans) and welfare plans (including health, disability and life insurance plans). ERISA also includes the health coverage continuation and accessibility provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA) and the Health Insurance Portability and Accountability Act (HIPAA). This information sheet focuses on bankruptcy?s effect on pension plans and group health plans.

If an employer declares bankruptcy, it will generally take one of two forms: reorganization under Chapter 11 of the Bankruptcy Code, or liquidation under Chapter 7. A Chapter 11 (reorganization) usually means that the company continues in business under the Court's protection while attempting to reorganize its financial affairs. A Chapter 11 bankruptcy may or may not affect your pension or health plan. In some cases, plans continue to exist throughout the reorganization process. In a Chapter 7 bankruptcy, the company liquidates its assets to pay its creditors and ceases to exist. Therefore, it is highly likely your pension and health plans will be terminated.

When your employer files for bankruptcy you should contact the administrator of each plan or your union representative (if you are represented by a union) to request an explanation of the status of your plan or benefits. The summary plan description will tell how to get in touch with the plan administrator. Questions that you might want to ask include:
  • Will the plan continue or 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?
  • If the health plan is to be terminated, how will outstanding health claims be paid, and when will certificates of creditable coverage (showing, among other things, the dates of enrollment in your employer?s health plan) be issued?
Know Your Plan

Know the plan rules that govern the way your pension assets and health benefits are treated when the plan is terminated. The following documents contain valuable information about your health and pension plans and should be helpful to you. You should be able to obtain most of them from your plan administrator, employer or union representative.
  • Summary Plan Description - A description of your pension and health plan.
  • Summary Annual Report (not available for some plans) - An annual summary of the plan's finances that may contain names and addresses you may need to know.
  • Earnings and leave statements - These are your pay stubs and may help you establish your employment dates, compensation, and contributions to a plan.
  • Certificate of creditable coverage (available upon request even if you still have health coverage and provided automatically when your health coverage ceases)- A certificate of creditable coverage is a statement of your past health care coverage with your employer.
  • Individual benefit statements showing how much money is in your pension account (for individual account plans) or the value of your pension benefit (for defined benefit plans).
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