Retiree Benefits Bankruptcy Protection Act Holds Over ERISA Plans

"In a huge win for labor," a Law.com article yesterday reported, "the U.S. 3rd. Circuit Court of Appeals has ruled that a corporation in bankruptcy cannot terminate its retirees' health and life insurance benefits -- even if its ERISA plan explicitly reserved its right to unilaterally terminate such benefits -- unless it can show that doing so is a necessary part of its reorganization plan…

"The 95-page decision in In re Visteon Corp. promises to alter the playing field in big corporate bankruptcies by mandating compliance with Section 1114 of the Retiree Benefits Bankruptcy Protection Act without exception.," the article says, "marking the first time that any federal appeals court has squarely addressed the scope of Section 1114 and, by demanding a plain reading of the law, could reverse a strong trend among bankruptcy and district court judges to avoid the requirements of Section 1114 whenever the debtor corporation would have been free to terminate retiree benefits prior to the bankruptcy."

"Section 1114 could hardly be clearer," Chief Circuit Court Judge Theodore A. McKee wrote. "It restricts a debtor's ability to modify any payments to any entity or person under any plan, fund, or program in existence when the debtor files for Chapter 11 bankruptcy, and it does so notwithstanding any other provision of the bankruptcy code. There is therefore no ambiguity as to whether Section 1114 applies."

"McKee's opinion," Law.com's article says, "includes a lengthy discussion of the law's legislative history, beginning with a highly controversial bankruptcy in which 78,000 retirees lost their benefits, and shows that Congress was setting out to establish a mechanism that must be followed in any bankruptcy to ensure fairness to workers who often agreed to forgo raises over decades in return for the promise of lifelong benefits."