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Bankruptcy Protections For Workers

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The Protecting Employees and Retirees in Business Bankruptcies Act of 2007 (S. 2092 and H.R. 3652) would add important protections for workers’ pensions and retirement savings plans when companies declare bankruptcy.

Under current law, some companies have been able to escape their pension liabilities at the expense of their workers when they file for bankruptcy. This is because they are allowed to stop their underfunded pension plans and transfer responsibility for paying benefits to the Pension Benefit Guaranty Corporation (PBGC), the federal government’s pension insurance program. Some workers may receive much smaller benefits than they were promised because there are dollar limits on the amounts that the PBGC can pay. Read our fact sheet on PBGC guarantees.

One provision of the bill would give workers and retirees in traditional pension plans the right to make a claim against the company if the PBGC assumes the pension plan and pays workers less than their fully earned benefits under the plan.

Companies have also allowed and even encouraged workers to keep overpriced company stock as a large component of their retirement savings accounts. This can result in tremendous losses for the workers when that stock becomes worthless. By law, individuals with a financial claim against a company in bankruptcy must be identified in the bankruptcy code in order to have the right to make the claim. The bankruptcy code contains a “priority list” determining which creditors have priority in recovering their financial claims against a company in bankruptcy. Certain creditors are given highest priority when it comes to paying off the company’s debts, but workers with retirement plan investments in company stock are considered shareholders, and are among the last to be paid.

The bill would also give workers higher priority in making a claim against the company in bankruptcy when company stock invested in retirement savings plans lostvalue due to fraud or other wrongdoing.

In addition, current law allows companies to continue retirement plans for their executives even after terminating their traditional pension plans. The bill would prohibit companies from providing executive retirement plans in instances where companies terminate their traditional pension plans.

Read Sections 4, 12 and 15 of the Protecting Employees and Retirees in Business Bankruptcies Act of 2007 (S. 2092 and H.R. 3652).

On June 5, 2008, the Center testified on H.R. 3652 at a hearing held by Subcommittee on Commercial and Administrative Law of the House Judiciary Committee.

Read the letter the Center wrote in support of the legislation.

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