Non-qualified Plans and Employer Financial Distress (Bankruptcy)
2020.02.25 Giving Priority to Nonqualified Plan Benefits - see separate heading below.
2018 "Bankruptcy and Non-Qualified Deferred Compensation Plans" begins with an overview of applicable bankruptcy rules and processes, then discusses non-qualified retirement plans (which generally result in pre-petition unsecured claims), and concludes with an appendix presenting "a summary of bankruptcy cases and their treatment of NQDCP plans therein, over the last two decades."
2017.07.20 "Former Executives Beware: Some Chapter 11 Debtors Attempt to Treat Their Obligations to Current and Former Executives Differently" discusses the settlement of nonqualified plan claims that arose from the Chapter 11 reorganization of Peabody Energy.
2016.06.14 "The Effect of Executive Compensation on Recoveries" (Harvard Law Bankruptcy Roundtable), discussing a paper whose abstract states: "Using a sample of bankrupt firms, I find that supplemental executive retirement plans are positively associated with recoveries to unsecured debt in bankruptcy. Firms where CEOs have inside debt at the sample mean experience $0.053 greater recoveries per dollar of debt in the event of bankruptcy relative to firms where the CEO does not have inside debt."
2013.01 "Protecting Retiree Benefits in Bankruptcy" (National Retiree Legislative ), suggests changes to the bankruptcy code to protect retirees, with proposal #8 advocating that "Congress should amend the Bankruptcy Code to require that the termination of non-qualified senior executive pension and deferred compensation plans are a precondition to the termination of any qualified pension plan maintained for a broader class of employees."
2012.01.24 "Kodak Bankruptcy Shows The Risks Of Nonqualified Deferred Compensation" stating that "Until its bankruptcy, Kodak had left distributions as scheduled and had not terminated its elective plan. All distributions from the plans stopped on the date of the bankruptcy filing. We have learned that all participants were informed that their interests will become an unsecured claim in the Chapter 11 proceedings and that they will receive instructions on how to file a claim in the future."
2007.12.05 In re Exide Technologies (378 B.R. 762, Bankr. D. Del. 2007), quoting from the decision:
2007 See In re Bethlehem Steel Corp., 479 F.3d 167 (2d Circuit, 2007) (treating vested, prepetition accruals in nonqualified plans as unsecured claims on the estate).
2006.11.26 "Delta bankruptcy: Retirees agree to pension settlement: Compensation for lost benefits adds up to $800M for former pilots, but avoids litigation costs" (stating: "Delta said its unsecured creditors committee agreed to a retired pilot claim of $719 million, bringing the total to around $800 million, including previously negotiated amounts. Such claims are typically paid at a rate on the dollar, which has not been determined as part of Delta's Chapter 11 case.")
2005.07.06 In re WINN-DIXIE STORES, INC., et al., Debtors (326 B.R. 853, MD FL), under which "vested benefits under the SRP as of the Petition Date is estimated to have been $15,883,998.28," and holding that "The Court finds that the Plan Participants’ interests are already being represented by the Creditors’ Committee. To the extent that the Non-Qualified Plans are rejected and the Plan Participants have unsecured claims, they will have the same interest as every other unsecured creditor, maximizing the value of the Debtors’ estates. The Court does not find that the Plan Participants’ position is so unusual as to warrant the appointment of an additional creditors’ committee."
2001.06.27 "Retired PG&E; Executives Seek Full Pensions in Bankruptcy Case" (LA Times), stating for context: "PG&E; spokesman Ron Low said 50 retired executives and about 35 other senior employees have a portion of their retirement benefits in unsecured plans and are considered creditors."
GIVING PRIORITY TO NONQUALIFIED PLAN BENEFITS (AS UNSECURED CREDITORS)
Regarding the special treatment for nonqualified retirement benefits in a Chapter 11 proceeding, here are some interesting sources.
SOURCE: “Chapter 11 Trustee Handbook” (Dept of Justice, 2004)
SOURCE: Protecting Retiree Benefits in Bankruptcy (AREF, 9/1/2017)
SOURCE: Surviving Spouse Brief in Avaya Chapter 11 (2017)
SOURCE: Fiduciary Duties in Bankruptcy and Insolvency
University of Michigan Law School Scholarship RepositoryLaw & Economics, Working Papers, 3-29-2018
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