[Congressional Record Volume 151, Number 13 (Wednesday, February 9, 2005)]
[Senate]
[Pages S1203-S1205]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ROCKEFELLER (for himself and Mr. Leahy):
  S. 329. A bill to amend title 11, United States Code, to increase the 
amount of unsecured claims for salaries and wages given priority in 
bankruptcy, to provide for cash payments to retirees to compensate for 
lost health insurance benefits resulting from the bankruptcy of their 
former employer, and for other purposes; to the Committee on the 
Judiciary.
  Mr. ROCKEFELLER. Mr. President, over the last several years as the 
economy came down from the high of the 1990s, we have seen how 
devastating it can be for workers when their companies declare 
bankruptcy. From the enormous Enron bankruptcy at the end of 2001 to 
the bankruptcies of Wheeling-Pitt and then Weirton Steel in my own home 
State, every bankruptcy has brought heartache for workers who had 
dedicated themselves to their employers. In many cases, employees and 
retirees have very limited ability to recover the wages, severance, or 
benefits they are due when their companies seek protection from 
creditors.
  Workers deserve better. So today I am introducing the Bankruptcy 
Fairness Act to strengthen workers' rights in bankruptcy and to provide 
greater authority to bankruptcy courts to ensure a fair distribution of 
assets. I am very pleased that Senator Leahy, the distinguished ranking 
Democrat on the Senate Judiciary Committee is an original cosponsor of 
this bill.
  Specifically, the bill will do three things. It will ensure that 
retirees whose promised health insurance is taken away receive at least 
some compensation for their lost benefits. Second, my legislation would 
allow employees to recover more of the back-pay or other compensation 
that is owed to them at the time of the bankruptcy. And lastly, it 
would provide bankruptcy courts the authority to recover company assets 
in cases where company managers flagrantly paid excessive compensation 
to favored employees just before declaring bankruptcy.
  I first introduced this legislation in the 108th Congress. I am 
reintroducing

[[Page S1204]]

it because this issue is as important in West Virginia today as it has 
ever been. I am hopeful that as Congress considers any changes to 
bankruptcy law we will debate how we can better protect workers whose 
companies file for bankruptcy. I do not pretend to have all the 
answers. But I do know that we must do a better job of easing the 
burden that bankruptcy imposes on employees and retirees. And I believe 
that we can do so in creative ways that do not make it more difficult 
for companies to successfully reorganize and emerge from bankruptcy. I 
look forward to the ideas and suggestions of my colleagues.
  In the simplest economic terms, employees sell their labor to their 
companies. They toil away in offices, plants, factories, mills, and 
mines, because they are promised that at the end of the day they will 
receive certain compensation. One of the most important types of 
compensation that workers earn is the right to enjoy certain benefits 
when they retire. Pensions, life insurance, or health care coverage are 
earned by workers in addition to their weekly paychecks. Yet, sadly we 
have seen many companies in the last few years abandon these promises 
when they declare bankruptcy.
  More and more we see companies taking the easy road to profitability 
by abandoning commitments that they made to workers. For retirees who 
have planned for their golden years based on the benefits they have 
earned, losing health insurance can be a devastating blow. Retirees 
must have the right to reasonable compensation if the company seeks to 
break its promise to provide health insurance. Under current law, these 
retirees receive what is called a general unsecured claim for the value 
of the benefits they lost. As any creditor will tell you, a general 
unsecured claim is essentially worthless in most bankruptcies. It means 
you are at the end of the line, and there are not enough assets to go 
around. This law allows companies to essentially rescind compensation 
that retirees have earned with virtually no cost to the company. Of 
course that is a great deal for the company, but it is spectacularly 
unfair to the retirees.
  Recognizing that so-called legacy costs are often an impossible 
burden for a company that is trying to emerge from bankruptcy, my 
legislation would still allow companies in some circumstances to alter 
the health coverage offered to retirees. However, it would require that 
the company pay a minimum level of compensation to retirees. Under this 
bill, each retiree would be entitled to a payment equal to the cost of 
purchasing comparable health insurance for a period of 18 months. Of 
course, 18 months of health insurance coverage is a lot less than many 
of these retirees are losing, but it can ease the transition as 
retirees make alternative plans, and it will discourage companies from 
thinking that terminating retiree health coverage is an easy solution. 
The retirees would still be entitled to a general unsecured claim for 
the value of the benefits lost in excess of this one time payment. This 
change would ensure that retirees, while still not being made whole on 
lost benefits, will at least receive some compensation for the broken 
promises.

  Many active workers, too, have a difficult time recovering what is 
owed to them by their employer when the company files bankruptcy. Under 
current law, employees are entitled to a priority claim of up to 
$4,925. But that figure is usually not enough to cover the back-wages, 
vacation time, severance pay, or benefit payments that the employees 
are owed for work done prior to the bankruptcy. Congress needs to 
update the amount of the priority claim to ensure that more workers are 
able to receive what is rightfully theirs. The Bankruptcy Fairness Act 
would establish a priority claim for the first $15,000 of compensation 
owed to an employee.
  In most cases, employees have been working their hardest to help the 
company avoid the nightmare of bankruptcy, only to find that they will 
not be compensated for their services as promised. As we saw so clearly 
with the Enron case, employees are often left holding the bag when 
their company declares bankruptcy. In that case, employees were owed an 
average of $35,000 in back-wages, severance, and other promised 
compensation. They deserved to recover more than a mere $4,925 of what 
was owed them. Let me be clear, this bill does not establish any new 
obligation for a company to pay severance or other compensation to 
employees caught up in a company's bankruptcy. It merely ensures that 
employees can recover more of what is already owed to them through the 
bankruptcy process.
  I understand that many creditors or investors are not able to recover 
what is rightfully owed to them in bankruptcy, but employees deserve 
protection that recognizes the unique nature of their dependence on 
their employer. Any smart investor diversifies his or her portfolio so 
that a bankruptcy at one company does not bankrupt the investor. 
Likewise, suppliers and creditors that do business with a company 
typically have many other clients. This is not the case with workers. 
They cannot diversify away the risk of working for a bankrupt company, 
and the financial hardship a bankruptcy brings is more devastating to 
the average worker than the average creditor or supplier.
  Now, I know that some of my colleagues listening to this may be 
worrying that this legislation is insensitive to the needs of companies 
that are trying to reorganize in order to emerge from bankruptcy and go 
forward as successful businesses. I am fully aware that sometimes, too 
often in the real world, the bankruptcy process can help companies stay 
open and maintain jobs by restructuring obligations to creditors. Too 
many companies in West Virginia have had to go through the painful 
process of Chapter 11 reorganization. I completely understand the need 
to keep the factories open. And I have always worked side by side with 
companies to help them recover.
  I will continue that important work, and I have included a provision 
in this bill to help bankrupt companies that are struggling to survive 
to recover assets that have been pilfered from the corporate coffers. 
In too many cases, company executives reward themselves even as their 
companies careen toward bankruptcy. The most egregious recent example 
is at Enron in 2001. In the days and weeks leading up to the bankruptcy 
filing, executives granted large bonuses to themselves and their 
favored employees. Millions of dollars were paid to a select group of 
employees just before the company declared bankruptcy. It is 
unconscionable that executives would grant themselves undeserved 
bonuses and then weeks later claim that the company did not have the 
resources to pay its rank and file employees.
  My legislation provides bankruptcy courts greater authority to 
recover excessive compensation that was paid just prior to the 
bankruptcy filing. If the court finds that compensation was out of the 
ordinary course of business or was unjust enrichment, the court can 
recover those assets for the bankrupt company, ensuring that more 
creditors, employees, and retirees can receive what is rightfully owed 
to them by the company.
  The reforms I have outlined are modest. They will not take the sting 
out of bankruptcy. By definition a bankruptcy is a failure, and it is 
painful for the company's employees, retirees, and business partners. 
But the Bankruptcy Fairness Act I am introducing today would make 
progress toward ensuring that bankruptcies are more fair to the workers 
who gave their time and energy and sweat to the company in exchange for 
certain promised compensation. And by helping a company recover assets 
that should not have been paid out as undeserved bonuses just before 
bankruptcy the bill ensures that more of a company's assets are paid to 
the employees, retirees, and creditors who are rightfully owed.
  It is my hope that this legislation will receive serious 
consideration from my colleagues, and that this can open an important 
debate about how workers and retirees can be better protected from the 
ugly side of prolonged economic downturns. I ask unanimous consent that 
the text of the legislation be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 329

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Bankruptcy Fairness Act''.

[[Page S1205]]

     SEC. 2. FAIR TREATMENT OF COMPENSATION IN BANKRUPTCY.

       (a) Increased Priority Claim Amount for Employee Wages and 
     Benefits.--Section 507(a) of title 11, United States Code, is 
     amended--
       (1) in paragraph (3)--
       (A) by striking ``$4,925'' and inserting ``$15,000''; and
       (B) by striking ``within 90 days''; and
       (2) in paragraph (4)(B)(i), by striking ``$4,925'' and 
     inserting ``$15,000''.
       (b) Recovery of Excessive Compensation.--Section 547 of 
     title 11, United States Code, is amended by adding at the end 
     the following:
       ``(h) The court, on motion of a party of interest, may 
     avoid any transfer of compensation made to a present or 
     former employee, officer, or member of the board of directors 
     of the debtor on or within 90 days before the date of the 
     filing of the petition that the court finds, after notice and 
     a hearing, to be--
       ``(1) out of the ordinary course of business; or
       ``(2) unjust enrichment.''.

     SEC. 3. PAYMENT OF INSURANCE BENEFITS OF RETIREES.

       (a) In General.--Section 1114(j) of title 11, United States 
     Code, is amended to read as follows:
       ``(j)(1) No claim for retiree benefits shall be limited by 
     section 502(b)(7).
       ``(2)(A) Each retiree whose benefits are modified pursuant 
     to subsection (e)(1) or (g) shall have a claim in an amount 
     equal to the value of the benefits lost as a result of such 
     modification. Such claim shall be reduced by the amount paid 
     by the debtor under subparagraph (B).
       ``(B)(i) In accordance with section 1129(a)(13)(B), the 
     debtor shall pay the retiree with a claim under subparagraph 
     (A) an amount equal to the cost of 18 months of premiums on 
     behalf of the retiree and the dependents of the retiree under 
     section 602(3) of the Employee Retirement Income Security Act 
     of 1974 (29 U.S.C. 1162(3)), which amount shall not exceed 
     the amount of the claim under subparagraph (A).
       ``(ii) If a retiree under clause (i) is not eligible for 
     continuation coverage (as defined in section 602 of the 
     Employee Retirement Income Security Act of 1974), the 
     Secretary of Labor shall determine the amount to be paid by 
     the debtor to the retiree based on the 18-month cost of a 
     comparable health insurance plan.
       ``(C) Any amount of the claim under subparagraph (A) that 
     is not paid under subparagraph (B) shall be a general 
     unsecured claim.''.
       (b) Confirmation of Plan.--Section 1129(a)(13) of title 11, 
     United States Code, is amended to read as follows:
       ``(13) The plan provides--
       ``(A) for the continuation after its effective date of the 
     payment of all retiree benefits (as defined in section 1114), 
     at the level established pursuant to subsection (e)(1) or (g) 
     of section 1114, at any time before the confirmation of the 
     plan, for the duration of the period the debtor has obligated 
     itself to provide such benefits; and
       ``(B) that the holder of a claim under section 
     1114(j)(2)(A) shall receive from the debtor, on the effective 
     date of the plan, cash equal to the amount calculated under 
     section 1114(j)(2)(B).''.
       (c) Rulemaking.--The Secretary of Labor shall promulgate 
     rules and regulations to carry out the amendments made by 
     this section.
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