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Chapter 11 and impact on pension
Old 09-21-2005, 01:26 PM   #1
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Chapter 11 and impact on pension

Just read an article in the local paper about one of the regional manufacturing plants filing Chapter 11. My nieghhor reitred from that company a number of years ago and recieves a pension. Just curious as to what the impact on him may be ? Any ideas ?

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Re: Chapter 11 and impact on pension
Old 09-21-2005, 01:33 PM   #2
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Re: Chapter 11 and impact on pension

I believe that the Pension Guarantee board has a cut off of about $46K (in addition to SS) that you can receive under their system. So lower paid folks will probably come out OK but if you were an airline pilot of someone who was going to get a $60K or $100K pension then there would be a considerable reduction in benifits. Not bad as a safety net but not a lot of comfort for others.

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Re: Chapter 11 and impact on pension
Old 09-21-2005, 01:37 PM   #3
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Re: Chapter 11 and impact on pension

Depennds. If the pension was not underfunded and the assets were not heavily compsed of employer stock, no problem. Otherwise, he would be wise to go look up the PBGGC's rules to see how he might be affected.
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Re: Chapter 11 and impact on pension
Old 09-21-2005, 01:55 PM   #4
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Re: Chapter 11 and impact on pension

The debtor can propose to reject its pension obligations in bankruptcy if they are underfunded. The debtor has to make a good faith proposal to the union and negotiate with the union. The court can only allow rejection of the pension contract if, the union refuses to acept the debtor's proposal without good cause, and the balance of equities clearly favors rejection of the pension contract.

This occured in the United Airlines bankruptcy, which has dumped its pension obligations on the PBGC. As stated above the PBGC likely won't fully cover the pensions.

Northwest Airlines also does not have a fully funded pension but is trying to negotiate for a long term payback of its obligations so it doesn't have to reject the pension plans. I doubt it will be successful.

EDIT: forgot to mention that most often contracts to provide retiree health benefits are rejected and the PBGC doesn't cover health insurance obligations.

EDIT again: FAQs on PBGC's obligations:

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Re: Chapter 11 and impact on pension
Old 09-21-2005, 05:18 PM   #5
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Re: Chapter 11 and impact on pension

I am scheduled to receive a non-cola $12k pension in 7+ years. I wasn't counting on it because I am not sure if my former company would survive or will stop funding the plan.
According to my retirement plan, PBGC insures the benefits if the company terminates without enough money to pay the earned benefits . Can I assume that since my annual pension will be way under the current $46k, that I can count on get it? It would be great pocket money.
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Re: Chapter 11 and impact on pension
Old 09-21-2005, 06:00 PM   #6
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Re: Chapter 11 and impact on pension

You can count on getting something.

If your company goes into bankruptcy and hands off their pension obligations to the PBGC then they will fund your pension.

However you may not get everything that was originally promised. As I recall they were only paying around 50 percent of their obligations. So in that case you'd only see maybe $6k/year in benefits.

Here's a link to the PBGC website for your info:

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