{ "id": "R43732", "type": "CRS Report", "typeId": "REPORTS", "number": "R43732", "active": false, "source": "EveryCRSReport.com, University of North Texas Libraries Government Documents Department", "versions": [ { "source": "EveryCRSReport.com", "id": 440959, "date": "2015-04-30", "retrieved": "2016-04-06T22:45:47.041358", "title": "The Effect of Firm Bankruptcy on Retiree Benefits, with Applications to the Automotive and Coal Industries", "summary": "Benefits for retired employees are of particular interest to policymakers, who often are concerned with the income security of retirees, a large and fast-growing population. One aspect of this congressional concern is what happens when bankrupt employers are unable to provide promised pension and health benefits to their retired employees.\nIn chapter 11 bankruptcy reorganization, the employer receives protections against its financial commitments in the hope that it may once again become profitable. This protection could include not having to honor obligations concerning pensions and retiree health insurance. Its employees may therefore be at risk of not receiving some of their promised benefits. Unionized and nonunionized employees may be treated differently under the law because unionized workers have a legal contract governing their terms and conditions of employment. \nThe costs to employers for the pension, health insurance, and other benefits promised to retired employees are known as legacy costs, and different costs are subject to different federal laws. Although employers are required to prefund their defined benefit pension trusts, the level of required funding may not be present as the employer enters bankruptcy. The Pension Benefit Guaranty Corporation (PBGC), a quasi-public agency, monitors the finances of pension plans. The PBGC becomes the trustee of and pays benefits to participants in terminated, underfunded single-employer pension plans. PBGC benefits are subject to a statutory maximum that may be less than the retiree was promised by his or her employer. The PBGC has been running deficits for several years, and the deficit for one of its two programs is at an all-time record high. PBGC funding comes from employer premiums set by Congress, the assets of the plans it takes over, and investment returns. There is no taxpayer funding.\nSome retirees receive health benefits from their former employer. Retiree health benefits, however, are not insured by any public agency, and employers are not required to prefund health benefits. However, health benefits (for active and retired employees) can be funded through a tax-preferred trust fund known as a Voluntary Employees\u2019 Beneficiary Association (VEBA). When an employer and union agree to form a VEBA, and it is approved by a bankruptcy court, the employer generally contributes a collectively bargained level of funding to the VEBA. Providing this contribution usually fulfills the employer\u2019s total responsibility for retiree health care. All subsequent retiree health benefit decisions are transferred to the trustees of the VEBA. (VEBAs often are created outside of bankruptcy and are not restricted to unionized work places. In addition, VEBAs may be funded by employers only, by employees only, or jointly by both employers and employees.)\nAfter a discussion of these issues, this report provides three examples of bankruptcy proceedings in which the retirees\u2019 pensions and health insurance benefits received substantial federal attention: the General Motors Corporation, the Delphi Corporation, and the Patriot Coal Corporation.\nDuring bankruptcy proceedings for the General Motors Corporation (commonly known as Old GM or pre-bankruptcy GM), retiree health benefits were central and pensions, although underfunded, were not a major issue. Old GM\u2019s main union, the United Auto Workers (UAW), accepted stock in the General Motors Company (commonly known as New GM or post-bankruptcy GM) as a partial funding source for its retiree health care VEBA, which has covered retiree health benefits since 2010. The VEBA was intended to cover retiree health benefits for 80 years, but it is unclear how long its funding will last.\nPensions were a central source of controversy during the Delphi Corporation\u2019s bankruptcy. Some (union and nonunion) employees had been promised a pension greater than the PBGC maximum. When the various Delphi pension plans were terminated by the PBGC, most unionized employees did not see their pensions fall because of supplemental pension coverage originally negotiated by Old GM and the UAW. The salaried Delphi workers, however, had no union, and some found themselves receiving lower pension benefits than had been promised by Delphi. Salaried workers formed a labor association, the Delphi Salaried Retirees Association (DSRA), with hopes of strengthening their position. The DSRA has been unsuccessful in its efforts to have its members\u2019 pensions increased, and a subsequent court case has not yet been settled. \nBoth pension and retiree health benefits were central to the complicated and contentious negotiations during the bankruptcy of the Patriot Coal Corporation. The relevant union, the United Mine Workers of America (UMWA), is a multiemployer union in which the collectively bargained contracts cover the employees of many employers. The UMWA Pension Trust was underfunded before the Patriot bankruptcy, and it remains underfunded today. In fact, some consider the potential insolvency of the coal employers\u2019 pension plan a threat to the overall solvency of PBGC\u2019s program on multiemployer pension plans. Because many Patriot retirees were employees of another employer, Peabody Energy, when they were actively working, the bankruptcy court ruled that Peabody, and not Patriot, was responsible for funding the VEBA created to cover health benefits.", "type": "CRS Report", "typeId": "REPORTS", "active": false, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R43732", "sha1": "e0e8fff1919dc39dc953a20863108e94c7714984", "filename": "files/20150430_R43732_e0e8fff1919dc39dc953a20863108e94c7714984.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R43732", "sha1": "1830244ca88e6c1a3134ca09c07c85954968349e", "filename": "files/20150430_R43732_1830244ca88e6c1a3134ca09c07c85954968349e.pdf", "images": null } ], "topics": [] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc462918/", "id": "R43732_2014Sep22", "date": "2014-09-22", "retrieved": "2014-12-05T09:57:41", "title": "The Effect of Firm Bankruptcy on Retiree Benefits, with Applications to the Automotive and Coal Industries", "summary": "This report begins with a discussion of whether bankrupt firms can invalidate previous commitments covering retiree pensions and health insurance. The report next discusses the specific protections accorded to retiree pensions and health insurance benefits. Certain types of pensions are guaranteed by a quasi-public agency, while no such guarantee exists for retiree health insurance. The report concludes with brief case studies of the bankruptcies of Old GM, Delphi, and Patriot.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20140922_R43732_9ef41f5fb2787c6bf903a59d04641b5ed7a2204d.pdf" }, { "format": "HTML", "filename": "files/20140922_R43732_9ef41f5fb2787c6bf903a59d04641b5ed7a2204d.html" } ], "topics": [ { "source": "LIV", "id": "Bankruptcy", "name": "Bankruptcy" }, { "source": "LIV", "id": "Pensions", "name": "Pensions" }, { "source": "LIV", "id": "Retiree health benefits", "name": "Retiree health benefits" } ] } ], "topics": [ "Domestic Social Policy" ] }