Employee Benefits and Executive Compensation in Corporate Bankruptcy brings together two areas that intersect when a company faces financial trouble: bankruptcy law and employee benefits law. Written by lawyers from the Employee Benefits and Executive Compensation practice at Jones Day, this Collier monograph offers the integrated analysis needed in an especially complex area.
Employee benefits lawyers may not always understand the implications of bankruptcy on employee benefits and executive compensation; likewise, the nuances of ERISA and the Internal Revenue Code may not be grasped by corporate bankruptcy specialists. Accordingly, this monograph is invaluable to lawyers advising corporate debtors navigating through the maze of bankruptcy.
The topics covered are as follows:
• Planning in the prepetition period
• First-day motions and actions
• Classifying pre-and postpetition claims and the application of general bankruptcy principals to compensation and benefits
• Treatment of compensation and benefits in bankruptcy
• Benefits and compensation challenged as preferences or fraudulent transfers.
• Treatment of single employer defined benefit plans and interactions with the Pension Benefit Guaranty Corporation
• Executive compensation
• Retiree benefits, collective bargaining agreements and processes under Bankruptcy Code sections 1113 and 1114
• Voluntary employees' beneficiary associations (VEBAs)
• COBRA continuation coverage for retirees in bankruptcy
• Health coverage tax credit
• Fiduciary matters
• Union matters
• Sales of assets under Bankruptcy Code section 363
• Liquidation-related benefits matters
• Multiemployer pension plans
• U.K. pensions
• Troubled-Asset Relief Program
There are five appendices:
• First-day employee wage and benefit motion and accompanying order (Appendix A)
• Pension plan distress termination motion (Appendix B)
• Bankruptcy Code § 1114 motion (Appendix C)
• Record Retention Guideline---Employment-Related Records: Federal Rules (Appendix D)
• Table of Defined Terms (Appendix E)
Section 1 Introduction
[1] Interplay Between Bankruptcy Code, ERISA and the IRC
Section 2 Prepetition Planning
[1] Identify Employees and Benefit Plans
[2] Determine Which Benefit Programs to Add, Retain and Eliminate
[3] Controlled Group Issues
[a] Defining the Controlled Group
[i] In General
[ii] Foreign Controlled Group Members
[b] Controlled Groups with Defined Benefit Pension Plans
[4] Choosing a Filing Date
[5] Handling Specific Types of Plans in the Prefiling Period
[a] Nonqualified Retirement Plans in the Prefiling Period
[i] Liability for Benefits
[ii] Restrictions on Funding Nonqualified Deferred Compensation
[iii] Administration of Nonqualified Plans Immediately Prior to Filing
[iv] Ongoing Accruals
[b] Plans That Invest in Employer Stock
[c] Defined Benefit Plan Issues
[d] Welfare Plans
[6] Communication Planning
[7] Consider Labor Unions
[8] Ongoing Administration
Section 3 First-Day Motions and Treatment of Benefits and Compensation
[1] First-Day Motions
[2] First-Day Actions
Section 4 Classifying Pre- and Postpetition Claims: Application of General Bankruptcy Principles to Compensation and Benefits
[1] Debtor's Inability to Pay Prepetition Obligations
[2] Treatment of Postpetition Claims
[a] Permitted Payment of Postpetition Obligations
[b] Second Priority Administrative Expenses-Postpetition Wages
[3] Priority of Prepetition Claims
[a] Fourth Priority Prepetition Wages
[b] Fifth Priority Prepetition Benefits
[c] Treatment of Benefits with Non-Priority Status
[d] Assumption or Rejection of Executory Contracts
Section 5 Treatment of Compensation and Benefits in the Bankruptcy Proceeding
[1] Prohibition on Amendment of Qualified Defined Benefit Plans
[2] Compensation
[a] Wages
[b] Commissions
[c] Bonus
[d] Vacation Pay
[e] Severance
[f] Expense Reimbursement
[3] Benefits
[a] Welfare Plans
[b] Qualified Retirement Plans
[i] Defined Contribution Plans
[ii] Defined Benefit Pension Plans
[c] Nonqualified Retirement Plans
[i] Treatment of Nonqualified Plans and "Plan Assets"
[d] Stock Options/Equity Compensation
[e] Split-Dollar Life Insurance
[f] Multiemployer Plans
[g] Voluntary Employees' Beneficiary Associations
Section 6 Benefits and Compensation Challenged as Preferences or Fraudulent Transfers
Section 7 Treatment of Single Employer Defined Benefit Plans and Interactions with the PBGC
[1] Title IV of ERISA and Defined Benefit Pension Plans
[2] The PBGC as Creditor-Prebankruptcy Concerns
[a] Early Warning Program/Risk Mitigation Program
[b] Prebankruptcy Planning and the Minimum Funding Standard/Minimum Required Contributions
[3] The PBGC as Creditor-Concerns after Commencement of Bankruptcy Proceedings
[a] PBGC Claims in Bankruptcy
[b] Termination Premium
[c] Bankruptcy Priority of PBGC Claims for Missed Minimum Required Contributions, Unfunded Benefit Liabilities and Missed Premium Payments
[i] Unfunded Benefit Liability Claim
[ii] Claims for Missed Minimum Required Contributions
[iii] Claims for Missed Premiums
[d] Valuation of PBGC Claims
[e] PBGC Settlements
[4] Benefit Freeze upon Filing/Contingent Event Benefits
[5] Bankruptcy and Other Notice Requirements
[a] Bankruptcy Notice to Participants
[b] Reportable Event Notice
[6] Minimum Funding Standard and Minimum Required Contributions
[a] "At-Risk" Plans
[b] Payment of Minimum Required Contributions in Bankruptcy
[c] Consequences of Failure to Make Minimum Required Contributions/Failure to Meet the Minimum Funding Standard
[i] Interest
[ii] Excise Tax
[iii] Minimum Funding Lien
[iv] Notice to the PBGC
[v] Notice to Participants
[d] Waiver of Minimum Funding Standard
[i] Restrictions on Plan Amendments
[e] Liquidity Shortfall
[i] Excise Tax
[ii] Minimum Funding Lien
[iii] Fiduciary Penalty
[7] Funding or Bankruptcy Based Limits on Benefits, Accruals and Plan Amendments
[a] AFTAP Below 80 Percent
[i] Restrictions on Plan Amendments
[ii] Restrictions on Accelerated Benefit Distributions
[b] AFTAP Below 60 Percent
[i] Restrictions on Unpredictable Contingent Event Benefits
[ii] Restrictions on Benefit Accruals
[iii] Restrictions on Plan Amendments
[iv] Restrictions on Accelerated Benefit Distributions
[c] Plan Sponsor in Bankruptcy
[i] Restrictions on Plan Amendments
[ii] Restrictions on Accelerated Benefit Distributions
[d] Plan Subject to Minimum Funding Waiver
[i] Restrictions on Plan Amendments
[e] Security
[8] Defined Benefit Plan Terminations
[a] Distress Terminations
[i] The Reorganization Test
[ii] Procedures
[b] Involuntary Terminations by the PBGC
[9] Pension Plan Restoration
[10] Liability for Participant and Beneficiary Claims after Termination
[11] Participant Access to Information Following a Distress Termination
[12] Termination Date
[13] Options for Purchase of a Company with an Underfunded Defined Benefit Plan in Bankruptcy
[a] Purchase in an Asset Sale
[b] Purchase of the Equity of a Debtor
[14] Surplus Assets
Section 8 Executive Compensation
[1] Existing Employment Agreements and Other Executive Agreements
[a] Options for Assumption, Rejection and Modification
[i] Executory Contracts
[ii] Assumption and the Business Judgment Rule
[iii] Assumption in Part is Not Permitted
[b] Section 363(c)(1)-Transactions in the Ordinary Course of Business
[i] Assumption and Subsequent Modification
[ii] In re Crystal Apparel: Incorporation by Reference of Certain Prepetition Contract Terms Deemed a Modification
[c] Quantum Meruit
[d] Limits on Claims
[e] Fraudulent Transfers
[2] Nonqualified Retirement Benefits
[a] Nonqualified Plans Generally
[b] Claims
[c] Treatment of Nonqualified Plans and "Plan Assets"
[i] Unfunded Nonqualified Plans
[ii] Nonqualified Plans and Rabbi Trusts
[iii] Nonqualified Plans Funded Through Secular Trusts
[iv] Alternatives Available for Nonqualified Benefits
[d] Postpetition Nonqualified Retirement Benefits
[3] Equity Compensation
[a] Assumption of Prepetition Equity Plans
[4] Retention: Strict Restrictions on Key Employee Retention Plans ("KERP")
[a] In General
[b] Definition of "Insider"
[5] Severance: Strict Restrictions on Severance for Insiders
[6] Other Transfers to Officers, Managers or Consultants
[7] Key Employee Incentive Programs
[8] Section 409A of the IRC
[a] Prohibition on Acceleration
[b] Cancellation of Elections
[c] Restrictions on Funding Nonqualified Deferred Compensation
Section 9 Retiree Benefits, CBAs and the Processes under Sections 1113 and 1114 of the Bankruptcy Code
[1] Modification of Retiree Benefits under Section 1114
[2] Section 1114 and Contractual Termination Rights
[a] Vested Contract Approach
[b] Plain Language Approach
[3] Section 1129
[4] CBAs and Section 1113
[5] Sections 1113 and 1114 Apply in Chapter 11 Liquidating Cases
[6] Claims for Retiree Benefits Are Administrative Expense Claims
Section 10 Voluntary Employees' Beneficiary Associations
[1] Labor Management Relations Act-Restrictions in Establishment of a Union VEBA
[a] Exceptions to Prohibitions
[i] Section 302(c)(2) of the LMRA-"Settlement Agreement" Exception
[ii] Section 302(c)(5) of the LMRA-"Taft-Hartley Trust" Exception
[b] Bankruptcy Proceeding Coupled with a Sale Transaction and Section 302 of the LMRA Exceptions
[2] Establishment and Operation of a VEBA
[a] General Requirements
[b] Tax Treatment
[i] VEBAs Not Established Pursuant to a CBA
[ii] VEBAs Established Pursuant to a CBA
[c] Funding
[d] VEBA Plan Assets
Section 11 COBRA Continuation Coverage for Retirees in Bankruptcy
[1] In General
[2] Bankruptcy-Related Qualifying Event
[3] Duration of COBRA Continuation Coverage for Retiree Coverage
[a] In General
[b] Termination of Retiree and Qualified Beneficiary Continuation Coverage
[4] Type of Coverage to Be Provided
[5] Adverse Selection and COBRA Premiums
[6] Controlled Group Liability
[7] Successor Liability in a Sale of Assets
Section 12 Health Coverage Tax Credit
[1] Requirements
[a] General Requirements
[b] Eligibility for the HCTC
[c] Qualified Health Insurance
[2] Claiming the HCTC
[3] Application of HCTC to Retired Employees
[4] ARRA Temporary Modifications to HCTC
[a] Temporary Increase in the Amount of the HCTC
[b] Temporary Inclusion of Certain VEBAs as Qualified Health Insurance
[c] Temporary Expansion of Eligible Individuals and Qualifying Family Members
[d] Coordination with COBRA Premium Assistance Program
Section 13 Fiduciary Matters
[1] General Duties under ERISA
[2] Dealings in Company Stock
[3] Executive Compensation Decisions: Dual Role-ESOP Fiduciary and Director/Officer
[4] Plan Contributions
[5] Third-Party Compensation of the Estate's Officers and Directors or the Debtor by a Creditor
Section 14 Union Matters
[1] Special Protections for Union Employees and Retirees
[2] Role of Union
[3] Union Ownership in Bankruptcies and Recent Sales
Section 15 363 Sales
[1] In General
[2] Single Employer Defined Benefit Pension Plans in a 363 Sale
[3] Multiemployer Pension Plans in a 363 Sale
[a] Successor Liability
[4] Successor COBRA Liability in a 363 Sale
Section 16 Liquidation-Related Benefits Matters
[1] Final Employee Benefit Plan Reporting
[2] Termination of Qualified Defined Contribution Plans
[3] Record Retention
[a] Abandonment
[b] Spoliation
[i] General Rule
[ii] Duty to Preserve
Section 17 Multiemployer Pension Plans
[1] Multiemployer Withdrawal Liability Generally
[a] Complete Withdrawal Determination
[b] Partial Withdrawal Determination
[c] Withdrawal Liability Calculation
[d] Payment of Withdrawal Liability
[e] Assessment of Withdrawal Liability Against Participating Employer
[2] Multiemployer Withdrawal Liability in an Asset Sale
[a] Exception from Withdrawal Liability
[i] Purchaser's Contribution
[ii] Purchaser's Bond Requirement
[iii] Seller's Secondary Liability
[b] Variances or Exemptions from the Requirements of Section 4204 of ERISA
[i] De Minimis Transactions
[ii] Asset Sales that Are Not De Minimis Transactions
[iii] Individual Requests to the PBGC for Exemptions
[c] Adjustment of Unfunded Vested Benefits for Liability Calculation
[d] Successor Liability
[3] Treatment of Claims for Multiemployer Pension Fund Withdrawal Liability
[4] Multiemployer Plan Withdrawal Following Emergence
Section 18 U.K. Pensions
[1] Foreign Benefits and Compensation Matters Generally
[2] U.K. Pensions Regulator and the Pension Protection Fund
[a] Introduction
[b] The Regulator
[i] Contribution Notices
[ii] Financial Support Directions
[iii] Jurisdiction of the Regulator
[iv] Clearance Statements
[c] The Pension Protection Fund and Its Role in a Planned Insolvency
[3] International Cooperation
Section 19 Troubled Asset Relief Program
[1] In General
[2] Executives and Employees Affected by the TARP Standards
[3] Executive Compensation Requirements and Restrictions
[a] Golden Parachute Payment Prohibition
[b] Payment or Accrual of Bonus, Retention Award or Incentive Compensation Prohibition
[c] Tax Gross-Up Prohibition
[d] Clawback of Payments and/or Accruals
[4] IFR: Corporate Governance Standards and Disclosure Requirements
[a] Say on Pay Requirement
[b] CEO and CFO Certification
[c] Board Risk Review and Certification
[d] Perquisite and Compensation Consultant Disclosure
[e] Adoption of Luxury Expenditure Policy
[5] IFR: Special Master Review and Approval
[a] Exceptional Assistance TARP Recipients
[b] Bonuses Paid Prior to February 17, 2009
[c] Special Master Determinations
[i] Final Determinations for the SEOs and the Most Highly Compensated Employees Subject to the Bonus Restrictions
[ii] Final Determinations for the 100 Most Highly Compensated Employees
Appendix A First-Day Wage and Employee Benefit Motion
Appendix B Pension Plan Distress Termination Motion
Appendix C Bankruptcy Code Section 1114 Motion
Appendix D Record Retention Guideline-Employment-Related Records: Federal Rules
Appendix E Table of Defined Terms
Jesner, Lisa Rothman
LISA ROTHMAN JESNER is an associate in the New York City office of Jones Day in the employee benefits and executive compensation group. Her practice includes counseling clients on benefits and compensation issues, and on matters that arise in the course of corporate transactions and restructurings. Ms. Rothman Jesner has counseled clients on various aspects of bankruptcy matters, including negotiations and litigation with the PBGC and establishment of VEBAs in connection with modification of retiree benefits in bankruptcy. She also has experience designing, drafting and implementing compensation programs for senior management of distressed companies. She held a leadership position on the employee benefits and executive compensation committee of the Business Law Section of the American Bar Association and from 2003 through 2006 co-authored the ERISA litigation chapter for the ABA Annual Review of Developments in Business and Corporate Litigation. She is a co-author of Collier Monograph: Employee Benefits and Executive Compensation in Corporate Bankruptcy (2d ed. 2010). Ms. Rothman Jesner is a graduate of Brandeis University (B.A., cum laude, 1995) and Georgetown University (J.D., cum laude, 1999).
Hagen, Daniel C.
DANIEL C. HAGEN is a partner in the Cleveland office of Jones Day, and co-chairs the firm's employee benefits and executive compensation practice. He advises Jones Day clients on all aspects of their executive compensation and employee benefits programs, with special emphasis on restructurings, mergers and acquisitions and executive compensation programs and agreements. Mr. Hagen's experience in bankruptcy and other restructuring matters has covered the full range of benefits and compensation issues that need to be handled in those settings, including terminations of defined benefit and pension plans, negotiations with the Pension Benefit Guaranty Corporation, the redesign or elimination of retiree welfare benefits and the design and implementation of compensation programs for debtors and reorganized companies. Mr. Hagen also has advised numerous clients on their purchases of businesses from debtors in bankruptcy proceedings, and has dealt with bankruptcy-related issues for controlled group affiliates of debtors and companies undergoing restructurings, including private equity and venture capital funds. Mr. Hagen is listed in the Best Lawyers in America and in Chambers USA (America's Leading Lawyers for Business) and is a co-author of Collier Monograph: Employee Benefits and Executive Compensation in Corporate Bankruptcy (2d ed. 2010). He is a graduate of Baldwin-Wallace College (B.A., summa cum laude, 1977) and the University of Virginia (J.D., 1980), where he was a member of the law review.
Eschbach-Hall, Tricia
TRICIA ESCHBACH-HALL is a partner in the Cleveland office of Jones Day and practices in the areas of employee benefits and executive compensation. She counsels clients on the administration and legal compliance of qualified and nonqualified retirement plans, welfare benefit plans and compensation programs. Ms. Eschbach-Hall has considerable experience providing advice to distressed employers with respect to the benefits and compensation issues raised during corporate reorganizations. In addition, she has counseled several clients with respect to the special employee benefits issues related to their purchase of assets from debtors in bankruptcy proceedings. Ms. Eschbach-Hall is a co-author of Collier Monograph: Employee Benefits and Executive Compensation in Corporate Bankruptcy (2d ed. 2010). She is a graduate of Kenyon College (B.A., cum laude, 1996) and The Ohio State University (J.D., with honors, 1999), where she was a Managing Editor of the Ohio State Law Journal.
Cornell, John R
JOHN R. CORNELL is a partner in the New York City office of Jones Day, advising clients on all aspects of their executive compensation and employee benefits programs. Mr. Cornell routinely handles the benefits and compensation issues arising in bankruptcy matters when corporations prepare for, enter, and emerge from chapter 11 proceedings under the Bankruptcy Code. His experience includes termination of underfunded defined benefit plans and retiree welfare plans and related negotiations with the Pension Benefit Guaranty Corporation, creditor groups, and other stakeholders. He is also involved in designing and implementing compensation and retention programs covering key executives and other senior management of companies in financial distress. He has been and is involved in the negotiation, establishment and funding of voluntary employees' beneficiary associations (VEBAs) for union represented retirees and nonrepresented retirees for the provision of health, disability and life insurance benefits. Mr. Cornell is a co-author of Collier Monograph: Employee Benefits and Executive Compensation in Corporate Bankruptcy (2d ed. 2010). He received bachelor's and master's (hon.) degrees from Colby College in 1965 and 1997, respectively. He graduated from Georgetown University Law Center in 1968, where he was an Executive Editor of the Law Journal, and he received an L.L.M. in Taxation from New York University in 1972.