Employer-Sponsored Benefits: Many Factors Affect the Treatment of
Pension and Health Benefits in Chapter 11 Bankruptcy (06-SEP-07,
GAO-07-1101).
In recent years, considerable debate has centered on companies
using the chapter 11 bankruptcy reorganization process to reduce
or eliminate employer-sponsored benefits in an effort to become
more competitive. Congress recently enacted several laws, in
part, to help address this issue. Most notably, Congress passed
the Bankruptcy Abuse Prevention and Consumer Protection Act of
2005 (BAPCPA) and the Pension Protection Act of 2006 (PPA).
BAPCPA contained provisions related to chapter 11 business
bankruptcies and sought to address the treatment of benefits
during the bankruptcy process. In addition, the PPA amended
several Employee Retirement Income Security Act of 1974 (ERISA)
provisions related to defined benefit (DB) plans in bankruptcy.
This report addresses (1) how, if at all, recent legislative
changes affected the treatment of pension and health benefits
during chapter 11 bankruptcies, and (2) what is known about the
extent to which businesses have modified employee or retiree
pension and health benefits. GAO reviewed filings of 115 public
companies that filed for bankruptcy between October 17, 2004 and
October 17, 2006, and conducted interviews with various experts
on the treatment of benefits in the bankruptcy process. Relevant
federal agencies agreed with the findings contained in this
report.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-1101
ACCNO: A75753
TITLE: Employer-Sponsored Benefits: Many Factors Affect the
Treatment of Pension and Health Benefits in Chapter 11 Bankruptcy
DATE: 09/06/2007
SUBJECT: Bankruptcy
Employee benefit plans
Employee medical benefits
Employee retirement plans
Legislation
Legislative procedures
Pensions
Retirement benefits
Policies and procedures
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GAO-07-1101
* [1]Summary of Findings
* [2]Concluding Observations
* [3]Agency Comments and Our Evaluation
* [4]GAO Contacts
* [5]Staff Acknowledgments
* [6]GAO's Mission
* [7]Obtaining Copies of GAO Reports and Testimony
* [8]Order by Mail or Phone
* [9]To Report Fraud, Waste, and Abuse in Federal Programs
* [10]Congressional Relations
* [11]Public Affairs
* [12]PDF6-Ordering Information.pdf
* [13]Order by Mail or Phone
Report to Congressional Requesters
United States Government Accountability Office
GAO
September 2007
EMPLOYER-SPONSORED BENEFITS
Many Factors Affect the Treatment of Pension and Health Benefits in
Chapter 11 Bankruptcy
GAO-07-1101
Contents
Letter 1
Summary of Findings 3
Concluding Observations 5
Agency Comments and Our Evaluation 5
Appendix I Briefing Slides 8
Appendix II Select Information on Bankruptcy Cases Reviewed 38
Appendix III Comments from the Pension Benefit Guaranty Corporation 42
Appendix IV GAO Contacts and Staff Acknowledgments 43
Abbreviations
AOUSC Administrative Office of the United States Courts
BAPCPA Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
CBA collective bargaining agreement
DB defined benefit
DC defined contribution
EBSA Employee Benefits Security Administration
ERISA Employee Retirement Income Security Act of 1974
PACER Public Access to Court Electronic Records
PBGC Pension Benefit Guaranty Corporation
PPA Pension Protection Act of 2006
SEC Securities and Exchange Commission
This is a work of the U.S. government and is not subject to copyright
protection in the United States. The published product may be reproduced
and distributed in its entirety without further permission from GAO.
However, because this work may contain copyrighted images or other
material, permission from the copyright holder may be necessary if you
wish to reproduce this material separately.
United States Government Accountability Office
Washington, DC 20548
September 6, 2007
Congressional Requesters
Each year, thousands of employers file for chapter 11 bankruptcy to
reorganize their finances in an attempt to become profitable.^1 This
process can often be contentious, as many stakeholders, including
creditors, and employee and retiree groups, may be competing for
diminishing portions of the employers' remaining assets. In recent years,
considerable debate has centered on the use of the chapter 11 bankruptcy
process by employers to reduce or eliminate benefit obligations in an
effort to become more competitive, and whether such benefit obligations
have disproportionately affected employers in certain industries. For
example, structural problems in industries such as airlines, steel, and
automotive parts manufacturing have led large employers to declare
bankruptcy and terminate their defined benefit (DB) plans.^212 These
recent high-profile bankruptcy reorganizations have frequently resulted in
significant reductions of jobs and employee benefits--including wages,
retirement, and health benefits--and resulted in the Pension Benefit
Guaranty Corporation (PBGC) assuming billions of dollars in underfunded
pension benefit obligations. Each year, thousands of employers file for
chapter 11 bankruptcy to reorganize their finances in an attempt to become
profitable. This process can often be contentious, as many stakeholders,
including creditors, and employee and retiree groups, may be competing for
diminishing portions of the employers' remaining assets. In recent years,
considerable debate has centered on the use of the chapter 11 bankruptcy
process by employers to reduce or eliminate benefit obligations in an
effort to become more competitive, and whether such benefit obligations
have disproportionately affected employers in certain industries. For
example, structural problems in industries such as airlines, steel, and
automotive parts manufacturing have led large employers to declare
bankruptcy and terminate their defined benefit (DB) plans. These recent
high-profile bankruptcy reorganizations have frequently resulted in
significant reductions of jobs and employee benefits--including wages,
retirement, and health benefits--and resulted in the Pension Benefit
Guaranty Corporation (PBGC) assuming billions of dollars in underfunded
pension benefit obligations.
In recent years, Congress enacted several laws to, in part, help address
some of these issues. Most notably, Congress passed the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (BAPCPA) and the Pension
Protection Act of 2006 (PPA). BAPCPA sought to reduce the number of
perceived abuses in consumer and corporate bankruptcy filings. Although
BAPCPA mainly focused on consumer bankruptcies, it contained certain
provisions related to chapter 11 business bankruptcies In recent years,
Congress enacted several laws to, in part, help address some of these
issues. Most notably, Congress passed the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (BAPCPA) and the Pension Protection Act of
2006 (PPA). BAPCPA sought to reduce the number of perceived abuses in
consumer and corporate bankruptcy filings. Although BAPCPA mainly focused
on consumer bankruptcies, it contained certain provisions related to
chapter 11 business bankruptcies and sought to address the ways in which
employer-sponsored benefits are treated during the bankruptcy process. For
example, BAPCPA established a "look-back" period allowing courts to
reinstate retiree health benefits to what they were before any
modification by the employer during the 180 days prior to filing for
bankruptcy. Among other things, PPA amended the Employee Retirement Income
Security Act of 1974 (ERISA), including several provisions related to the
termination and funding of DB plans in bankruptcy. In response to your
interest in the effects of business bankruptcies on employee and retiree
pension and health benefits, this report addresses (1) how, if at all,
recent legislative changes have affected how businesses may treat pension
and health benefits during chapter 11 bankruptcies, and (2) what is known
about the extent to which businesses have modified employee or retiree
pension or health benefits in chapter 11 bankruptcies before and after
changes in the bankruptcy law took effect.
^1 In this report, we refer to companies that filed for chapter 11
protection under the Bankruptcy Code as employers. In the legislation,
these employers are referred to as debtors, and if the management of such
employers continue to operate the business during the pendency of the
chapter 11 case, they are also referred to as debtors in possession.
^2DB plans generally provide a guaranteed pension based on salary and
years of service, and are often provided as part of a collective
bargaining agreement (CBA)--a written agreement or contract between an
employer and a union that includes provisions on conditions of employment
and the procedures to be used in settling disputes during the term of the
contract. Employers may also offer a defined contribution (DC) plan in
which the employer, participants, or both make contributions to an
individual account, and the benefits are paid based on the contributions
to and investment returns on this account.
To address these questions, we focused on the 115 public employers^3
identified by the Securities and Exchange Commission (SEC) that filed for
chapter 11 bankruptcy the year prior to and the year following BAPCPA's
general enactment date--October 17, 2005. Therefore, our analysis covers
bankruptcy cases filed between October 17, 2004, and October 17, 2006. To
identify key changes to the U. S. Bankruptcy Code and ERISA, we reviewed
BAPCPA and PPA as well as other laws that affected the treatment of
benefits. We interviewed bankruptcy professionals, including researchers,
federal bankruptcy judges, and attorneys, to gain their insights on these
changes and the potential effects they may have on benefits. The attorneys
we interviewed have represented various stakeholders in the chapter 11
process including unions, retiree committees, debtor employers, and
creditors. We also interviewed officials that represented the government
and the public at the PBGC, Administrative Office of the United States
Courts (AOUSC), Department of Justice's U.S. Trustee Program, Department
of Labor's Employee Benefits Security Administration (EBSA), and
Department of the Treasury to obtain their insights on how recent
legislative changes could affect the treatment of benefits in bankruptcy.
Additionally, we interviewed officials at SEC to gain an understanding of
public companies' SEC filings. We reviewed documents submitted in
connection with court motions to change certain benefits (including DB
plans, retiree health benefits,^4 and benefits covered by collective
bargaining agreements (CBA)), first day orders, and motions to continue
employee benefits. We obtained and reviewed these publicly available
documents from the Public Access to Court Electronic Records system
(PACER). We also reviewed company information from annual SEC filings to
identify employers' various benefit obligations. To provide contextual
information, we obtained and analyzed data from AOUSC on all chapter 11
cases filed over the period. We found these data to be sufficiently
reliable for our purposes. The newness of BAPCPA and PPA and the small
number of changes they contain affecting how employers can treat benefits,
as well as the limited information readily available on benefit changes
proposed and approved, made it difficult to assess the effects of these
laws. We conducted our work between October 2006 and September 2007 in
accordance with generally accepted government auditing standards. On
August 23, 2007 and August 28, 2007, we briefed your staff on the results
of our work using the briefing slides we include in appendix I. The report
formally conveys the information provided during our briefings.
^3 For detailed information on the 115 employers we reviewed, see appendix
II.
Summary of Findings
In summary, the effects of recent legislation on employers' decisions to
modify benefits are difficult to distinguish from the effects of other
factors--both within and outside of the bankruptcy process. Several laws
may affect the way employers treat employee and retiree benefit plans in
bankruptcy, including the Bankruptcy Code and ERISA. BAPCPA and PPA--which
amended the Bankruptcy Code and ERISA, respectively--included some
provisions related to the ways that employers can treat benefits in the
bankruptcy process. While BAPCPA included some changes that will affect
the treatment of employer-sponsored benefits in bankruptcy--such as the
possible reinstatement of retiree health benefits to what they were before
any modification by the employer during the 180 days prior to filing for
bankruptcy--most professionals agreed that the act will not substantially
affect employers' decisions to change benefits. Some bankruptcy
professionals said that PPA may impact employers' treatment of benefits in
bankruptcy and, in particular, how employers may seek to modify DB pension
plans. For example, some bankruptcy professionals said that the additional
time given to airlines to fund their DB plans contributed to at least two
major airlines retaining some or all of their plans in bankruptcy; other
professionals, however, said this change may not fully protect these DB
plans in the long-term. Further, the National Labor Relations Act^5
outlines how most employers can treat benefits covered by collective
bargaining agreements, and the Railway Labor Act^6 can affect the
treatment of benefits affecting airline and railroad employees. Bankrupt
employers may also consider other factors when trying to successfully
reorganize. For example, competing claims in bankruptcy, stakeholders and
creditors, and other outside forces such as the financial market and
industry competition, may contribute to employers' decisions to modify
their employee benefit plans.
^4 While we refer to "health benefits," which are a focus of this report,
the Bankruptcy Code requires court approval for modification of retiree
medical, surgical, or hospital care benefits, and any retiree benefits in
the event of sickness, accident, disability, or death. 11 U.S.C. S 1114(a)
and (e).
More information is known about the extent to which employers made benefit
changes that involved specific court approval--such as the termination of
DB plans, or changes to retiree health benefits or benefits covered by
CBAs--than those that can usually be made without specific court
involvement or approval--such as changes to DC plans or benefits for
active employees not covered by CBAs. Most of the 115 employers we
reviewed did not offer benefits that specifically needed court approval to
change. Specifically, we found that 20 of these employers offered DB
plans, 18 offered retiree health benefits, and 28 offered at least some
employees benefits covered by a CBA^7 Fewer than half of the employers
with these types of benefits sought to modify them in bankruptcy. For
example, in the year prior to and the year after the enactment of BAPCPA,
nine employers terminated their DB plans, resulting in a $1.4 billion
liability to PBGC. An additional three employers had terminations pending.
Five employers sought approval to modify their retiree health benefits.
The presence of a CBA adds another layer of complexity to how employers
may treat benefits in bankruptcy. Generally, employers and unions
negotiate any changes to a CBA--changes that often include benefit and
wage cuts--outside the courts. Eight of the employers that reported having
at least some employees with union representation sought to modify or
reject at least one of their collective bargaining agreements. While most
employers received approval to continue employee benefit plans in their
first day orders, it is unknown how many employers that offered health
benefits to active employees or defined contribution plans continued to
fund them. In particular, employers do not need court approval to change
these benefits if they are outside of a contractual agreement, although
some employers may still seek such approval. Some bankruptcy professionals
said that employers may stop making matching contributions to these plans
or may not remit payments in a timely manner. However, experts stated that
this information is often difficult to track.
^5 29 U.S.C. S 141 et seq.
^6 45 U.S.C. S 151 et seq.
^7 The benefits that employers offer are not mutually exclusive. For
example, one employer may offer (and seek to change) pension benefits,
retiree health benefits, and benefits covered under a collective
bargaining agreement. In total, 15 employers sought to change at least
some of their benefits.
Concluding Observations
Employers continue to play a primary role in financing retirement income
and health benefits for many workers. However, many are finding it
challenging to provide these benefits in an increasingly competitive
environment. Modifying benefit offerings as a cost-cutting measure is not
unique to bankruptcy, and is a trend that is also occurring outside the
bankruptcy process. In addition, changes in benefits, such as the shift
from defined benefit to defined contribution plans, means that fewer
employers may file motions to modify benefits in the future because these
changes typically do not involve specific court approval. While additional
time may be needed to more fully understand how recent legislation has
affected employers' treatment of benefits in specific cases, the full
impact of both of these laws on individuals' benefits or related federal
programs may never be known because employers' decisions to modify
benefits are part of a complex process, of which bankruptcy and pension
laws are only a part.
Many stakeholders are involved in the decision to modify benefits, and
striking a balance between maintaining employee benefits and successful
reorganization can be difficult for all parties involved. Achieving this
balance will often require successful negotiations between various
stakeholders such as unions, creditors, debtors, and in some cases PBGC.
Few employers have sought to modify their benefit plans in bankruptcy.
However, when such modifications are made, the effect on employees,
retirees, and related federal programs may be substantial.
Agency Comments and Our Evaluation
We obtained technical comments on a draft of the briefing slides from
cognizant agency officials, which we incorporated where appropriate prior
to briefing your staff. After the briefing, we provided a draft of the
entire report to officials of the Department of Labor, PBGC, Department of
Justice, and the AOUSC. We received technical comments from PBGC and EBSA,
which we have incorporated where appropriate. The Interim Director of the
Pension Benefit Guaranty Corporation provided written comments on a draft
of this report in a September 4, 2007 letter. PBGC agreed with our
findings and highlighted that PBGC will continue to monitor the effects of
both the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
and the Pension Protection Act of 2006 on PBGC's insurance programs. The
Department of Justice and AOUSC did not provide comments.
We plan to provide copies of this report to the Secretaries of Labor,
Justice, and the Treasury. We will also send copies to EBSA, the
Department of Justice's U.S. Trustee Program, AOUSC, PBGC, and interested
congressional offices. We will make copies available to others upon
request. In addition, the report will be available at no charge on the GAO
Web site at http://www.gao.gov. If you or your staff have any questions
about this report, please contact me at (202) 512-7215 or
[email protected]. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this report.
Barbara D. Bovbjerg
Director, Education, Workforce, and Income Security
Issues
Congressional Requesters
The Honorable Patrick J. Leahy
Chairman
Committee on the Judiciary
United States Senate
The Honorable Richard J. Durbin
The Honorable Russell D. Feingold
The Honorable Edward M. Kennedy
United States Senate
The Honorable John Conyers, Jr.
Chairman
Committee on the Judiciary
House of Representatives
The Honorable Howard L. Berman
The Honorable William D. Delahunt
The Honorable Sheila Jackson-Lee
The Honorable Zoe Lofgren
The Honorable Jerrold Nadler
The Honorable Robert C. Scott
The Honorable Chris Van Hollen, Jr.
The Honorable Debbie Wasserman Schultz
The Honorable Melvin L. Watt
House of Representatives
Appendix I: Briefing Slides
Appendix II: Select Information on Bankruptcy Cases Reviewed
(Dollars in
millions)
Other
postretirement
DB Obligations benefit Collective
Total Total at obligationsat bargaining
Company name^a File date assets liabilities Bankruptcy^b,c,d bankruptcy^b,c agreement
Post-BAPCPA cases
Sea Containers 2006-10-15 2.4 1.9
Ltd.
Delta Woodside 2006-10-13 38.2 2.2
Industries, Inc.
Anvil Holdings, 2006-10-02 108.3 231.1
Inc.
Global Power 2006-09-28 366.9 204.5
Equipment Group,
Inc.
The Rowe Companies 2006-09-18 134.2 86.6
Naturade, Inc. 2006-08-31 12.0 13.2
Portrait 2006-08-31 0.2 0.3
Corporation of
America, Inc.
Unicomp, Inc. 2006-08-25 NA NA
Fischer Imaging 2006-08-22 14.7 9.7
Corporation
Deja Foods, Inc. 2006-08-14 NA NA
Vesta Insurance 2006-07-18 1,980.8 1,880.7
Group, Inc.
OneTravel 2006-07-07 84.3 76.6
Holdings, Inc.
Image Innovations 2006-07-06 7.5 2.2
Holdings Inc.
Transcapital 2006-06-19 NA NA
Financial
Corporation
America Capital 2006-06-19 NA NA
Corporation
Werner Holding Co. 2006-06-12 283.6 463.7 67.9 3.3 Yes
Airnet 2006-05-22 29.0 8.1
Communications
Corporation
Silicon Graphics, 2006-05-08 452.1 643.3
Inc.
IDI Global, Inc. 2006-04-17 2.2 3.6
USA Commerical 2006-04-13 NA NA
Mortgage Company
Prosoft Learning 2006-04-12 8.6 4.8
Corporation
Verilink 2006-04-09 42.3 26.6
Corporation
Trans-Industries, 2006-04-03 15.7 13.3 Yes
Inc.
SeraCare Life 2006-03-22 89.1 43.4
Sciences, Inc.
Oneida Ltd. 2006-03-19 300.2 333.5 79.6 2.5 Yes
Televideo, Inc. 2006-03-14 9.1 14.2
The Plusfunds 2006-03-06 NA NA
Group, Inc.
Dana Corporation 2006-03-03 9,019.0 6,608.0 2,151.0 1,543.0 Yes
Integrated 2006-02-14 580.9 437.8
Electrical
Services, Inc.
Glycogenesys, Inc. 2006-02-02 3.1 1.8
Large Scale 2006-01-09 12.8 1.1
Biology
Corporation
Calpine 2005-12-20 27,216.1 22,235.0 Yes
Corporation
Desert Health 2005-12-15 0.3 4.6
Products, Inc.
Syndicated Food 2005-12-14 9.0 11.5
Service
International,
Inc.
FLYi, Inc. 2005-11-07 677.7 510.5 Yes
21st Century 2005-11-01 13.5 2.0
Technologies, Inc.
Mcleodusa 2005-10-28 1,025.8 997.2
Incorporated
Refco, Inc. 2005-10-17 NA NA
Pre-BAPCPA cases
The Boyds 2005-10-16 223.0 85.0
Collection, Ltd.
Pliant Corporation 2006-01-03 820.9 1,455.8 87.2 Yes
Gardenburger, Inc. 2005-10-14 19.9 101.8
Dynamic Sciences 2005-10-14 NA NA
International
Cyber Care, Inc. 2005-10-14 NA NA
Jacobson Resonance 2005-10-13 0.3 2.4
Enterprises, Inc.
Stassi Interaxx, 2005-10-13 NA NA
Inc.
Delphi Corporation 2005-10-08 16,593.0 19,934.0 12,872.0 9,605.0 Yes
Epixtar Corp. 2005-10-06 18.0 18.8
Tectonic Network, 2005-10-03 10.8 6.4
Inc.
GB Holdings, Inc. 2005-09-29 217.0 181.7 Yes
Home Directors, 2005-09-28 8.7 2.7
Inc.
Thermoview 2005-09-26 30.2 33.8 Yes
Industries Inc.
Entergy New 2005-09-23 662.8 488.5 78.4 54.8 Yes
Orleans, Inc.
Foamex 2005-09-19 645.7 1,004.0 143.9 1.2 Yes
International
Northwest Airlines 2005-09-14 14,042.0 16,866.0 9,245.0 926.0 Yes
Corporation
Delta Air Lines, 2005-09-14 21,801.0 27,597.0 12,100.0 1,835.0 Yes
Inc.
Three-five Systems 2005-09-08 111.8 46.0
Inc.
Trans Max 2005-09-08 1.8 2.4
Technologies, Inc.
Arlington 2005-08-31 103.4 90.5
Hospitality, Inc.
Anchor Glass 2005-08-08 657.2 472.0 55.8 53.8 Yes
Container
Corporation
Teraforce 2005-08-03 3.0 11.4
Technology Corp.
Allied Holdings, 2005-07-31 421.5 463.1 52.9 15.9 Yes
Inc.
Able Laboratories, 2005-07-18 104.3 8.0
Inc.
The Project Group, 2005-07-15 0.4 1.0
Inc.
Frontier Insurance 2005-07-05 NA NA
Group, Inc.
Torch Offshore, 2005-01-07 169.9 99.2
Inc.
Aura Systems, Inc. 2005-06-24 17.8 20.7
Heartland 2005-06-15 11.7 6.5
Technology, Inc.
Skyway 2005-06-14 7.0 4.1
Communications
Holding
Proxim Corporation 2005-06-11 63.6 108.5
Universal 2005-05-26 32.6 30.0
Automotive
Industries, Inc.
Greentech USA, 2005-05-24 3.4 2.1
Inc.
Western Water 2005-05-24 16.9 9.9
Company
Global 2005-05-19 35.7 35.4 Yes
Environmental
Energy Co.
Collins & Aikman 2005-05-17 3,191.2 2,750.9 444.6 100.2 Yes
Corporation
Certified HR 2005-05-12 NA NA
Services Company
AAIPHARMA Inc. 2005-05-10 339.1 451.0
Natural Golf 2005-05-10 1.2 2.2
Corporation
Composite 2005-05-05 18.1 12.5
Technology
Corporation
Composite 2005-05-05 914.1 900.5
Solutions, Inc.
Summit National 2005-04-21 NA NA
Group, Inc.
Eagle Picher 2005-04-11 598.8 740.8 259.8 9.3 Yes
Holdings, Inc.
Southern Investors 2005-04-08 2.4 8.6
Service Company
Tom's Foods Inc. 2005-04-06 101.3 108.4 57.1
Claremont 2005-03-25 0.0 0.3
Technologies
Corporation
Intercell 2005-03-16 0.3 0.3
International
Corporation
V-one Corporation 2005-03-11 0.9 2.7
WHX Corporation 2005-03-07 311.9 408.8 410.2 8.6 Yes
Skin Nuvo 2005-03-07 NA NA
International, LLC
HealthEssentials 2005-03-01 NA NA
Solutions, Inc.
Veritec Inc. 2005-02-28 1.7 3.3
Las Americas 2005-02-28 0.8 3.8
Broadband Inc.
Terra 2005-02-22 NA NA
Telecommunications
Corp
WINN-DIXIE Stores, 2005-02-21 2,618.9 1,701.5 68.8 17.0
Inc.
Syratech 2005-02-16 118.6 174.4
Corporation
Tower Automotive, 2005-02-02 2,560.8 2,681.7 280.7 173.0 Yes
Inc.
Falcon Products, 2005-01-31 266.5 228.0 41.7 Yes
Inc.
American Business 2005-01-21 1,042.9 1,031.0
Financial
Services, Inc.
First Virtual 2005-01-20 6.8 8.1
Communications,
Inc.
SGD Holdings, LTD 2005-01-20 6.8 4.4
American Banknote 2005-01-19 184.3 178.0 1.5
Corporation
Friedman's Inc. 2005-01-14 NA NA
Ultimate 2005-01-11 336.2 137.3
Electronics, Inc.
Acceptance 2005-01-07 279.3 376.7
Insurance
Companies, Inc.
Trico Marine 2004-12-21 585.2 443.2
Service, Inc.
The MIIX Group, 2004-12-20 1,278.6 1,557.2 13.6
Inc.
Tropical 2004-12-16 214.3 191.5 10.7 Yes
Sportswear Int'l
Corporation
Yukos Oil Company 2004-12-14 NA NA
Applied Extrusion 2004-12-01 407.5 413.3 Yes
Technologies, Inc.
Amcast Industrial 2004-11-30 230.3 272.3 114.4 0.6 Yes
Corporation
Trump Hotel & 2004-11-21 1,396.5 1,482.9 Yes
Casino Resorts,
Inc.
Shreveport Capital 2004-10-30 141.7 164.1
Corporation
eB2B Commerce Inc. 2004-10-27 NA NA
ATA Holdings 2004-10-26 651.1 1,571.6 Yes
Corporation
Epicus 2004-10-25 7.6 16.9
Communications
Group, Inc.
Huffy Corporation 2004-10-20 293.0 220.3 110.4 4.2 Yes
NA = Not Available
Source: GAO review of SEC 10-k filing data for the most recent year
available prior to employer's bankruptcy filing and PACER documents.
^a Company data may include information on all of its operating
subsidiaries.
^b Benefit obligations may not be comparable across companies, because
companies may have used different assumptions in calculating these
obligations.
^c Blank cells means that no DB benefit obligations or OPEBs for
non-executives were reported.
^d Some of the DB plans may have been terminated prior to bankruptcy.
Appendix III: Comments from the Pension Benefit Guaranty Corporation
Appendix IV: GAO Contacts and Staff Acknowledgments
GAO Contacts
Barbara D. Bovbjerg, Director (202) 512-7215
Staff Acknowledgments
The following staff members made major contributions to this report: David
R. Lehrer, Assistant Director; Nyree M. Ryder, Analyst-in-Charge; Mee-Yong
Rao; John J. Larsen; Susannah L. Compton; Gloria Hernandez-Saunders;
Walter K. Vance; and Craig H. Winslow.
(130610)
[14]www.gao.gov/cgi-bin/getrpt?GAO-07-1101 .
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Barbara Bovbjerg at (202) 512-7215 or
[email protected].
Highlights of [15]GAO-07-1101 , a report to congressional requesters
September 2007
EMPLOYER-SPONSORED BENEFITS
Many Factors Affect the Treatment of Pension and Health Benefits in
Chapter 11 Bankruptcy
In recent years, considerable debate has centered on companies using the
chapter 11 bankruptcy reorganization process to reduce or eliminate
employer-sponsored benefits in an effort to become more competitive.
Congress recently enacted several laws, in part, to help address this
issue. Most notably, Congress passed the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (BAPCPA) and the Pension Protection Act of
2006 (PPA). BAPCPA contained provisions related to chapter 11 business
bankruptcies and sought to address the treatment of benefits during the
bankruptcy process. In addition, the PPA amended several Employee
Retirement Income Security Act of 1974 (ERISA) provisions related to
defined benefit (DB) plans in bankruptcy.
This report addresses (1) how, if at all, recent legislative changes
affected the treatment of pension and health benefits during chapter 11
bankruptcies, and (2) what is known about the extent to which businesses
have modified employee or retiree pension and health benefits. GAO
reviewed filings of 115 public companies that filed for bankruptcy between
October 17, 2004 and October 17, 2006, and conducted interviews with
various experts on the treatment of benefits in the bankruptcy process.
Relevant federal agencies agreed with the findings contained in this
report.
The effects of recent legislation, including BAPCPA and PPA, on employers'
decisions to modify benefits are difficult to distinguish from the effects
of other factors that lead to changes in benefits both within and outside
of the bankruptcy process. Most bankruptcy professionals agreed that while
BAPCPA included some changes that will affect the treatment of
employer-sponsored benefits--such as the look-back period for the
reinstatement of retiree health benefits--it will not substantially affect
employers' decisions to modify benefits. Some bankruptcy professionals
suggested that PPA may affect employers' decisions to maintain their
defined benefit (DB) plans. Bankrupt employers consider many other factors
when trying to reorganize successfully, including competing claims, their
stakeholders and creditors, and outside forces such as the financial
market and industry competition.
More information is known about the extent to which selected employers
made benefit changes resulting in court decisions--i.e., changes to DB
plans, retiree health benefits, and benefits covered by a collective
bargaining agreement (CBA)--than changes not resulting in them--i.e.,
changes to defined contribution (DC) plans and active employee health
benefits not covered by a CBA. Most of the 115 employers we reviewed did
not offer benefits that specifically needed court approval to change. We
found only 20 of these employers had DB plans, 18 had retiree health
benefits, and 28 had employees covered by a CBA. Nine employers terminated
at least one of their DB plans, and 3 have terminations pending; 5 sought
to modify their retiree health benefits; and 8 sought to modify or reject
CBAs. While most employers received approval to continue employee benefits
in their initial motions, it is unknown how many employers that offered
health benefits to active employees or DC plans continued to fund them
because employers do not always need to seek court approval to change
these benefits.
Factors That May Affect Employers' Decisions Regarding Benefits
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