As some companies experience financial hardship as a consequence of the Covid-19 pandemic, bankruptcy filings under Chapter 11 of the U.S. Bankruptcy Code are on the rise. Companies looking to restructure and streamline costs in the bankruptcy process often look to employee benefit plans as one area for change.

This article broadly addresses the impact of a Chapter 11 bankruptcy on employee benefit plans and some of the significant employee benefits issues that debtors face in a Chapter 11 restructuring, including potential sale of the debtor’s assets under 11 U.S.C. §363 of the Bankruptcy Code.

Companies with significant benefits liabilities are sometimes forced to file for bankruptcy to facilitate a transaction that would not otherwise be possible outside of the bankruptcy process. Following a bankruptcy filing, a debtor must examine whether to continue or terminate its employee benefit plans as part of the restructuring. The laws applicable to employee benefit plans in bankruptcy are complex, and their application to any particular debtor is very fact specific.

Photo of Colleen Hart Colleen Hart

Colleen Hart is a partner in the Tax Department and a member of the Employee Benefits & Executive Compensation Group.

Colleen advises companies, executives and boards on complex executive compensation matters. She offers a multidisciplinary approach to compensation and benefits issues with a…

Colleen Hart is a partner in the Tax Department and a member of the Employee Benefits & Executive Compensation Group.

Colleen advises companies, executives and boards on complex executive compensation matters. She offers a multidisciplinary approach to compensation and benefits issues with a focus on tax planning, securities laws and corporate governance. Matters she handles include the negotiation, structuring and implementation of employment and change-in-control agreements and deferred compensation, equity and incentive compensation plans. She advises on golden parachute and deduction limitation rules, securities reporting, registration and disclosure requirements and California employment laws. In addition, Colleen has extensive experience advising clients on compensation and benefits issues arising in mergers and acquisitions, initial public offerings, bankruptcies and finance transactions.

Colleen is a contributing author of The 409A Handbook (BNA 2016) and lectures frequently on executive compensation matters. As a U.S. Navy veteran, Colleen devotes a substantial amount of time to organizations that provide legal and support services to U.S. veterans.

Photo of Elizabeth Down Elizabeth Down

Elizabeth Down is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group.

Liz represents multiemployer plans, public and private companies, not-for-profit organizations and other fiduciaries in legal and regulatory matters affecting employee…

Elizabeth Down is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group.

Liz represents multiemployer plans, public and private companies, not-for-profit organizations and other fiduciaries in legal and regulatory matters affecting employee benefit plans. These matters include compliance with ERISA, the Internal Revenue Code, the Affordable Care Act, the Consolidated Omnibus Budget Reconciliation Act and the Health Insurance Portability and Accountability Act.