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Your Employer's Bankruptcy... (continued)

Pension Plans

Workers in bankruptcy situations face two important issues when it comes to their retirement benefits: access to pension benefits and the continued safety of their pension assets. Generally, your pension assets should not be at risk when a business declares bankruptcy because ERISA requires that promised pension benefits be adequately funded and that pension monies be kept separate from an employer's business assets and held in trust or invested in an insurance contract. Thus, if an employer declares bankruptcy, the retirement funds should be secure from the company's creditors. In addition, plan fiduciaries must comply with the ERISA provisions, which prohibit the mismanagement and abuse of plan assets. If contributions to a plan have been withheld from your pay, you may want to confirm that the amounts deducted have been forwarded to the plan's trust or insurance contract.

In addition, some pension benefits may be insured by the Federal Government. Traditional plans (defined benefit plans) are protected by the Pension Benefit Guaranty Corporation (PBGC), a Federal Government corporation. If a plan is terminated because an employer has financial difficulty and cannot fund the plan, and the plan does not have enough money to pay the promised benefits, the PBGC will assume responsibility for the plan. The PBGC pays benefits after termination up to a certain maximum guaranteed amount. On the other hand, defined contribution plans, such as 401(k) plans, are not insured by the PBGC.

In the event the pension plan is terminated, the plan must vest your accrued benefit 100 percent. This means that the plan owes you all the pension benefits that you have earned so far, even benefits that you would have lost if you had voluntarily left your employment. ERISA does not require that pension benefits be paid out before normal retirement age, usually age 65. Your plan may provide for distribution sooner than this. Some plans require participants to reach a certain age before benefits will be distributed and some require the participant to have been separated from employment for a specified period of time. You should review the Summary Plan Description for the plan rules regarding payment of benefits. Also remember that taking a distribution of pension benefits before retirement may have important tax consequences. You may need to consult with a tax advisor before accepting the distribution.

Health Plans

Your group health plan must notify you within 60 days of any reduction in benefits. If a reorganizing employer maintained several health plans and discontinues most of its plans, you may be eligible to continue coverage in its remaining plan. If you are covered under your employer's health plan and you lose your job, have your hours reduced, or get laid off and lose coverage as a result, you and your dependents may qualify for COBRA continuation coverage. COBRA provides a right to purchase extended health coverage under your employer's plan.

You and your dependents may also have a special enrollment right in a spouse's group health plan. However, you and your dependents must request enrollment within 30 days of losing your coverage. If you elect COBRA coverage instead of special enrollment in a spouse's plan, you must exhaust COBRA before you may be eligible for another special opportunity.

If, however, your employer discontinues all its health plans COBRA continuation coverage will not be available. You will have to seek other coverage. Other coverage may be available by converting your employer's group health coverage to an individual policy. As mentioned above, you may also have rights to special enrollment in a spouse's employer's plan, or by being an "eligible individual" who is guaranteed access to individual insurance. The opportunity to buy an individual insurance policy is the same whether the individual is laid off, fired or quits his or her job.

Special bankruptcy rules may apply if you are receiving health benefits as a retiree, or if your health benefits are the subject of a collective bargaining agreement.

Finally, if you have unpaid health claims and your plan sponsor has declared bankruptcy, you may want to consider filing a proof of claim with the bankruptcy court.

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