Your Employer's Bankruptcy:
How Will It Affect Your Employee Benefits?

If an employer declares bankruptcy, it will generally take one of two forms: reorganization under Chapter 11 of the Bankruptcy Code, or liquidation under Chapter 7. A Chapter 11 (reorganization) usually means that the company continues in business under the Court’s protection while attempting to reorganize its financial affairs. A Chapter 11 bankruptcy may or may not affect your pension or health plan. In some cases, plans continue to exist throughout the reorganization process. In a Chapter 7 bankruptcy, the company liquidates its assets to pay its creditors and ceases to exist. Therefore, it is highly likely your pension and health plans will be terminated.

When your employer files for bankruptcy you should contact the administrator of each plan or your union representative (if you are represented by a union) to request an explanation of the status of your plan or benefits. The summary plan description will tell how to get in touch with the plan administrator. Questions that you might want to ask include:

• Will the plan continue or be terminated?
• Who will be acting as plan administrator of the plans during and after the bankruptcy, and who will be the trustee in charge of the pension plan?
• If the pension plan is to be terminated, how will accrued benefits be paid?
• Will COBRA continuation coverage be offered to terminated employees?
• If the health plan is to be terminated, how will outstanding health claims be paid, and when will certificates of creditable coverage (showing, among other things, the dates of enrollment in your employer’s health plan) be issued?

Know Your Medical Coverage:

Know the plan rules that govern the way your pension assets and health benefits are treated when the plan is terminated. The following documents contain valuable information about your health and pension plans and should be helpful to you. You should be able to obtain most of them from your plan administrator, employer or union representative.

• Summary Plan Description - A description of your pension and health plan.
• Summary Annual Report (not available for some plans)- An annual summary of the plan’s finances that may contain names and addresses you may need to know.
• Earnings and leave statements - These are your pay stubs and may help you establish your employment dates, compensation, and contributions to a plan.
• Certificate of creditable coverage (available upon request even if you still have health coverage and provided automatically when your health coverage ceases) - A certificate of creditable coverage is a statement of your past health care coverage with your employer.
• Individual benefit statements showing how much money is in your pension account (for individual account plans) or the value of your pension benefit (for defined benefit plans).

Notification:

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.

Who to contact for assistance:

You should post your question to our message board or contact your local department of labor office if:

• You are unable to obtain information or documents about your health plan
• You suspect contributions deducted from your pay check have not been deposited to the plan
• You need information and assistance with unpaid health claims or in obtaining a certificate of creditable coverage
• If your health plan coverage ends you should contact your state department of insurance to inquire about your eligibility to an individual policy under HIPAA.