What happens to Employee Retirement Plans when a Company goes Bankrupt

When a company goes bankrupt they have two options. Either to reorganize an try to stay in business by reduction costs and attract investors, or they can choose to liquidate. Either way the individuals who hold retirement plans with such companies will expect to get their full pension.

Individuals with vested interest in employee retirement plans should be worried if their employers starts to mention about filing for bankruptcy. However despite the situation facing the company that can lead to filing for bankruptcy, this does not mean that the individual will lose everything. It will depend on the type of bankruptcy that the company has filed for, even if the retirement plan ceases to in operation after the bankruptcy. The funds that the company has at the time will probably be available.

When an employer files for bankruptcy be it for an individual or business,  and is to close down the business,liquidate all of the assets and pay off all creditors then the employee should be concerned about what will happen to their retirement plans. The passage of the Employee Retirement Income Security Act in 1974 set guidelines on how companies should handle retirement plans in order to protect individuals fully from creditor claims.

The Chapter 11 bankruptcy has a greater chance of the employee retirement plans not to be affected much if at all. According to this chapter, the company continues to operate normally while a reorganization plan is being negotiated between the creditors , the court and company officials. If an individual begins to have doubts about the financial future of such a company then it is time to seek for other options.

There are several safeguards in the U.S to help prevent individuals from losing their pension. It is true that every defined benefit retirement plan is insured. When a company files for bankruptcy most people will still receive all or part of their company pension even if the company goes bankrupt. Sometimes the money paid out by the company from ones pension may not be what the individual expected.

There is a federal insurance agency called the pension benefit guaranty corporation( PBGC) that takes over pension plans when a company has filed for bankruptcy and has either terminated operations or liquidated. This is a federal corporation created under the Employee Retirement Income Security Act established in 1974. It guarantee payment of basic pension benefits earned by approximately 44 million American Citizens. The Corporations operations are financed by insurance premiums paid by companies that sponsor pension plans and also by investment returns.