What Happens to My Pension if My Employer Files for Bankruptcy?

Business owner showing he has no money

Many businesses go bankrupt, and it's a reality we have to face. If your employer’s business does, however, your pension might be at risk. This applies to your health insurance and other employee benefits, but fortunately for you, this isn’t a certainty.

How Employer Bankruptcy Affects Your Pension

If your employer files for Chapter 11, the business would most probably continue operating. This means that you won’t lose all your benefits, but your employer might not be able to match your contributions as before. If your employer files for Chapter 7, however, you might lose all your employee benefits. 

Is All Hope Lost?

The good news about this issue is that the Employment Retirement Income Security Act (ERISA) could safeguard your retirement fund by:

Requiring employers to keep their assets separate from the assets or the retirement plan

Requiring that employers retirement plan funds be invested in insurance contracts or kept in trusts

Applying these protections to all defined employee benefits and contribution plans

Thanks to its protections, the creditors of your employer can’t touch the plan’s funds. Osmond Law and other bankruptcy attorneys in Taylorsville noted, however, that you must verify your employer sending the contributions to the appropriate trust or insurance contract. You’d also be glad to know that the Federal Pension Benefit Guarantee Corporation (PBGC) backs defined benefit plans and other regular pension plans. They guarantee to pay you up to a certain cap in case your employer files for bankruptcy.

Do note that while both the PBGC and ERISA offer some safeguards for your benefits, you should keep in mind that the claims of creditors might apply to deferred compensation benefits. In addition, ERISA protections might not cover health insurance and if your employer cancels your health plan due to bankruptcy, you might not get to benefit from the Consolidated Omnibus Budget Reconciliation Act (COBRA).

Although there are certain laws that could protect your employee benefits if your employer files for bankruptcy, this isn’t guaranteed. If your pension does become affected, you could get help from an attorney to get your pension or file a case against your employer for mismanaging funds.