The Effect of Firm Bankruptcy on Retiree
Benefits, with Applications to the Automotive
and Coal Industries
Carol Rapaport
Analyst in Health Care Financing
September 22, 2014
Congressional Research Service
7-5700
www.crs.gov
R43732
The Effect of Firm Bankruptcy on Retiree Benefits
Summary
Benefits for retired employees are of particular interest to policy makers because of the growing
number of retirees and forecasts indicating that some future retirees may not have the necessary
financial resources to maintain their standards of living. Part of this congressional concern is what
happens when bankrupt employers are unable to provide promised pension and health benefits to
their retired employees.
In chapter 11 bankruptcy reorganization, the employer receives protections against its financial
commitments in the hope that it may once again become profitable. This protection could include
not having to honor obligations concerning pensions and retiree health insurance. Its employees
may therefore be at risk of not receiving some of their promised benefits. Unionized and non-
unionized employees may be treated differently under the law because unionized workers have a
legal contract governing their terms and conditions of employment.
The costs to the employers for the pension, health insurance, and other benefits promised to
retired employees are known as legacy costs, and different costs are subject to different federal
laws. Although employers are required to prefund their defined benefit pension trusts, the level of
required funding may not be present as the employer enters bankruptcy. The Pension Benefit
Guaranty Corporation (PBGC), a quasi-public agency, monitors the finances of pension plans.
The PBGC becomes the trustee of and pays the benefits to participants in terminated,
underfunded single-employer pension plans. PBGC benefits are subject to a statutory maximum
that may be less than the retiree was promised by his or her employer. The PBGC has been
running deficits for several years, and the deficit for one of its two programs is at an all-time
record high. PBGC funding comes from employer premiums set by Congress, the assets of the
plans it takes over, and investment returns. There is no taxpayer funding.
Some retirees receive health benefits from their former employer. Retiree health benefits,
however, are not insured by any public agency, and employers are not required to prefund health
benefits. On the other hand, employees (perhaps represented by their unions) can fund health
benefits (for active and retired employees) through a tax-preferred trust fund known as a
Voluntary Employees’ Beneficiary Association (VEBA). When the employer and union agree to
form a VEBA, and it is approved by the bankruptcy court, the employer generally contributes a
collectively bargained level of funding to the VEBA. Providing the contribution usually fulfills
the employer’s total responsibility for retiree health care. All subsequent retiree health benefit
decisions are transferred to the trustees of the VEBA.
After a discussion of these issues, this report provides three examples of bankruptcy proceedings
where the retirees’ pensions and health insurance benefits received substantial federal attention:
the General Motors Corporation, the Delphi Corporation, and the Patriot Coal Corporation.
During bankruptcy proceedings for the General Motors Corporation (commonly known as Old
GM or pre-bankruptcy GM) bankruptcy, retiree health benefits were central and pensions,
although underfunded, were not a major issue. Old GM’s main union, the United Auto Workers
(UAW), accepted stock in the General Motors Company (commonly known as New GM or post-
bankruptcy GM) as a partial funding source for its retiree health care VEBA. The VEBA has
covered retiree health benefits since 2010. It was intended to cover retiree health benefits for 80
years, but it is unclear how long its funding will last.
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The Effect of Firm Bankruptcy on Retiree Benefits
Pensions were a central source of controversy during the bankruptcy of the Delphi Corporation
(Delphi). Some (union and nonunion) employees had been promised a pension greater than the
PBGC maximum. When the various Delphi pension plans were terminated by the PBGC, most
unionized employees did not see their pensions fall because of supplemental pension coverage
originally negotiated by Old GM and the UAW. The salaried Delphi workers, however, had no
union, and some found themselves receiving lower pension benefits than had been promised by
Delphi. Salaried workers formed a labor association, the Delphi Salaried Retirees Association
(DSRA), with hopes of strengthening their position. The DSRA has been unsuccessful in its
efforts to have their members’ pensions increased, and the subsequent court case has not yet been
settled.
The bankruptcy of the Patriot Coal Corporation (Patriot) was also complicated and contentious,
even though federal law covering retired coal miners has been in place for many years. Both
pension and retiree health benefits were central to the negotiations. The relevant union, the United
Mine Workers of America (UMWA), is a multiemployer union where the collectively bargained
contracts cover the employees of many employers. The UMWA Pension Trust was underfunded
before the Patriot bankruptcy, and remains underfunded. In fact, some consider the potential
insolvency of the coal employers’ pension plan a threat to the overall solvency of PBGC’s
program on multiemployer pension plans. Because many Patriot retirees were employees of
another employer, Peabody Energy, when they were actively working, the bankruptcy court ruled
that Peabody, and not Patriot, was responsible for funding the VEBA newly created to cover
health benefits.
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The Effect of Firm Bankruptcy on Retiree Benefits
Contents
Introduction ...................................................................................................................................... 1
Protections for Retirees: Background Factors ................................................................................. 2
Bankruptcy ................................................................................................................................ 2
Type of Labor Organization....................................................................................................... 4
Type of Employee ...................................................................................................................... 5
Employer Agreements with its Former Subsidiaries ................................................................. 6
Protections for Retirees’ Pensions: The Pension Benefit Guaranty Corporation ............................. 6
Background................................................................................................................................ 6
Single-Employer Plans .............................................................................................................. 8
Multiemployer Plans ................................................................................................................. 8
Protections for Retirees’ Health Insurance: VEBAs ...................................................................... 10
Advantages Associated with VEBAs....................................................................................... 11
Risks Associated with VEBAs ................................................................................................ 11
Funding VEBAs ...................................................................................................................... 11
Protections for Retirees: Other Programs ...................................................................................... 12
Case Study 1: General Motors and the United Auto Workers ........................................................ 14
Background.............................................................................................................................. 14
Pensions ................................................................................................................................... 14
Retiree Health Insurance ......................................................................................................... 15
Case Study 2: Delphi and the Delphi Salaried Retirees Association ............................................. 17
Background.............................................................................................................................. 17
Pensions ................................................................................................................................... 18
Retiree Health Insurance ......................................................................................................... 19
Case Study 3: Patriot Coal and the United Mine Workers of America .......................................... 20
Background.............................................................................................................................. 20
Pensions ................................................................................................................................... 21
Retiree Health Insurance ......................................................................................................... 22
Recent Legislation ................................................................................................................... 23
Contacts
Author Contact Information........................................................................................................... 24
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The Effect of Firm Bankruptcy on Retiree Benefits
Introduction
Benefits for retired employees are of particular interest to policy makers because of the growing
number of retirees and forecasts indicating that some future retirees may not have the necessary
financial resources to maintain their standards of living.1 Part of this congressional concern is
what happens when bankrupt employers are unable to provide promised pension and health
benefits to their retired employees.
This report explores the protections of benefits awarded retirees and future retirees of bankrupt
private-sector employers under current law. Although there are many types of employee benefits,
active employees, retirees, and the employers themselves are often especially concerned with
post-retirement pensions and health insurance benefits, usually the two largest components of
these so-called legacy costs. This analysis provides examples from two industries of interest to
Congress where competitive pressures resulted in changes in each sector’s business outlook:
automobiles and coal.
Automotive Industry. The bankruptcy of the General Motors Corporation (Old GM)2 in 2009 was
the fourth-largest bankruptcy in U.S. history,3 and was accompanied by a period of federal aid to
the automotive industry. Two distinctive features of the Old GM bankruptcy were that federal
financing was important to the ultimate outcome, and that the outcome was associated with a
particularly strong labor union—the United Auto Workers (UAW).4
The report also focuses on the Delphi Corporation, an automobile parts supplier5 where salaried
retirees attempted to receive the benefits that hourly UAW retirees received.6 The benefits to
UAW hourly employees at Delphi had been contractually promised by Old GM in the pre-
bankruptcy period. Salaried workers at Delphi had no such contractual promise. In order to
facilitate increasing their benefits, salaried retirees formed a labor association, the Delphi Salaried
Workers Association (DSRA).7
Coal Industry. The United Mine Workers of America (UMWA) represents over 73,000 coal
miners.8 Congress has periodically passed legislation covering retiree benefits for coal miners
1 For more information, see Vickie Bajtelsmit, Anna Rappaport, and LeAndra Foster, Measures of Retirement Benefit
Adequacy: Which, Why, for Whom, and How Much? Society of Actuaries, January 2013, https://www.soa.org/
search.aspx?go=True&q=&page=1&pagesize=10&or=True&adv=True&with=
measures+of+retirement+benefit+adequacy&within=0, and Alicia H. Munnell, Natalia Sergeyevna Orlova, and
Anthony Webb, How Important is Asset Allocation to Financial Security in Retirement?, Center for Retirement
Research at Boston College, CRR WP 2012-13, April 2012, http://crr.bc.edu/wp-content/uploads/2012/04/wp-2012-
13.pdf.
2 Old GM is a commonly used expression for GM before its bankruptcy. Details are given in a later section of this
report.
3 For more information, see http://money.cnn.com/2009/06/01/news/companies/gm_bankruptcy.
4 The full name of the UAW is the International Union, United Automobile, Aerospace & Agricultural Implement
Workers of America.
5 Delphi was part of General Motors until 1999 when it was spun off as a separate company.
6 It is not conventional to refer to “Old Delphi” and “New Delphi,” partly because the name of the entity (Delphi
Corporation) was the same before and after the bankruptcy.
7 As will be discussed in a later section of this report, associations do not have the same collective bargaining rights as
unions.
8 For more information, see https://www.unionfacts.com/union/United_Mine_Workers.
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The Effect of Firm Bankruptcy on Retiree Benefits
since at least the 1940s. In October 1992, passage of the Coal Act9 protected health benefits for
some retired coal miners. In 2006, trust funds covering health insurance for retired miners
received federal assistance.10 Various bills dealing with pensions and health benefits provided by
bankrupt coal employers were introduced in the first session of the 113th Congress. These bills
were influenced by the July 2013 bankruptcy of the Patriot Coal Corporation (Patriot), an
employer with coal mines in West Virginia and Kentucky.
These three case studies are not necessarily representative of all chapter 11 bankruptcy
proceedings of large, unionized firms. Indeed, as case studies, they are not necessarily
representative of all bankruptcy proceedings of large, unionized firms in industries in which
Congress has become involved. Nevertheless, they do provide some evidence of how the federal
government deals with retiree benefits in industries where competitive pressures have changed.
This report begins with a discussion of whether bankrupt firms can invalidate previous
commitments covering retiree pensions and health insurance. The report next discusses the
specific protections accorded to retiree pensions and health insurance benefits. Certain types of
pensions are guaranteed by a quasi-public agency, while no such guarantee exists for retiree
health insurance. The report concludes with brief case studies of the bankruptcies of Old GM,
Delphi, and Patriot.11
Protections for Retirees: Background Factors
Whether retirees and future retirees receive their promised pensions and health insurance benefits
depends on many factors. Four are discussed in this section: 1) the type of bankruptcy (e.g.,
chapter 7 or chapter 11) and the relevant provisions of the Bankruptcy Code;12 2) the type of labor
organization (e.g., union, association, or not organized); 3) the type of employee (e.g., active
employee or retired employee); and 4) the legal relationship between the bankrupt employer, any
subsidiaries, and any parent company.
Bankruptcy
Employers generally file one of two forms of bankruptcy: chapter 7 (liquidation) or chapter 11
(reorganization). The bankruptcies filed by companies in the automotive and coal industries have
generally been filed under chapter 11; therefore, this report will focus on chapter 11 bankruptcies
after providing background information on both types.
Chapter 7
Chapter 7 of the Bankruptcy Code is designed for liquidation. For businesses, this generally
involves complete cessation of the business and disposition of all assets. The employer files for
chapter 7 bankruptcy when it believes that no amount of reorganization (including restructuring
9 Title XIX, Subtitle C, Health Care of Coal Miners (P.L. 102-486, 1992).
10 Title II, Subtitle B, Coal Industry Retiree Health Benefit Act (P.L. 109-432, 2006).
11 This report does not cover labor organizations that have never been used at Old GM, New GM, Delphi, or Patriot.
For example, Multiple Employee Welfare Associations (MEWAs) are not discussed.
12 11 U.S.C. §101 et seq.
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and financial modifications) would make the business profitable. Under chapter 7, a trustee is
appointed to preside over the consolidation and ultimate distribution of the employer’s assets. The
assets would either be sold or transferred to the employer’s creditors. In either case, the value of
the assets would be used to reimburse claimholders in a prescribed manner. Those with secured
claims would be paid first.13 Remaining assets then would be used to pay select unsecured
claims.14 If the assets were sufficient to pay all the priority claims in full, the remaining assets
would be used to pay the unsecured, non-priority claims on a proportional basis. Any claim for
retiree health or pension benefits would be both unsecured and non-priority. In short, employers
in chapter 7 bankruptcy are usually unable to fund any retiree health benefits and are only able to
pay pension benefits if their pension trust fund has sufficient assets.
Chapter 11
Chapter 11 bankruptcy proceedings generally involve a plan to restructure a business so that it
may become viable.15 In other words, a debtor (often the employer) filing under chapter 11
generally expects its obligations to be reorganized so that the business can continue to exist.16
Under chapter 11, the debtor generally remains in possession of the assets and continues to
operate. The debtor here is known as the debtor in possession. The debtor in possession operates
the business.17 In some cases, a buyer may be found for some or all of the assets. However, no
assets may be sold outside of the normal course of business without the approval of the
bankruptcy court.
Retiree benefits do not automatically end when a company files under chapter 11. Two sections of
the Bankruptcy Code govern the law determining retiree benefits before the debtor sells assets
under chapter 11.18 Section 1113 covers the rejection of a collective bargaining agreement (CBA)
for unionized firms, and Section 1114 covers the payment of retiree health insurance in both
unionized and nonunionized firms.19
11 U.S.C. Section 1113—Rejection of Collective Bargaining Agreements
Section 1113 covers the conditions under which a debtor in possession may reject a CBA by
either modifying or terminating it. Although the employees (through their union) can be expected
13 A secured claim is one where the claimant has the right to take and hold or sell certain property of the debtor in
satisfaction of some or the entire claim. An unsecured claim is one where the claimant holds no special assurance of
payment.
14 More specifically, the remaining assets would be used to satisfy unsecured claims with priority under Section 507 of
the Bankruptcy Code.
15 When a firm has filed under chapter 11 and then determines that it will not be able to successfully reorganize, it may
either convert the bankruptcy to chapter 7 or structure its own liquidation within chapter 11.
16 Some chapter 11 cases, however, result in liquidation of the debtor company. Example include Circuit City,
Whitehall Jewelers, and Linens’n’Things. For more information, see H. Jason Gold and Dylan G. Trache, Liquidation
of Troubled Businesses: Chapter 11 Liquidations Increasing, Wiley Rein LLP, March 31, 2009,
http://www.metrocorpcounsel.com/articles/11228/liquidation-troubled-businesses-chapter-11-liquidations-increasing.
17 11 U.S.C. §1107(a).
18 Much of this section is taken from archived CRS Report RL33138, Employment-Related Issues in Bankruptcy, by
Robin Jeweler.
19 A CBA is a negotiated contract governing the terms and conditions of employment. Information on the contents of a
CBA is provided in the next section.
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to argue that the negotiated benefits should continue to be awarded, the bankruptcy court may
allow the debtor in possession to alter or terminate the CBA using the following procedure. The
debtor in possession must first supply the authorized representative of the employees (usually a
union officer) information justifying the need for modifying the employees’ benefits and
protections. The employees (through the union negotiator) and employer then engage in good
faith negotiations with respect to proposals for alteration or termination of the CBA. If the parties
cannot negotiate an agreement, the debtor in possession requests that the court alter or terminate
the CBA. The court may take this step upon finding that the following conditions have been met:
1. The debtor in possession provided the authorized representatives of the
employees with the necessary information,
2. The authorized representative has refused to accept the proposal without good
cause, and
3. On balance, fairness favors voiding the CBA.
This section of the Bankruptcy Code applies only to unionized workplaces because nonunion
workplaces will not have a CBA. As will be discussed, employees who have formed an
association are nonunion employees.
11 U.S.C. Section 1114 – Payment of Insurance Benefits to Retired Employees
Section 1114 covers the conditions under which the debtor in possession may terminate or modify
retiree health benefits, whether or not the employees are operating under a CBA. Section 1114 is
modeled after Section 1113 and requires similar findings by the court to allow the debtor in
possession to terminate or modify retiree health insurance benefits. The debtor in possession must
first negotiate proposed modifications in benefits with an authorized representative of the retirees.
If they cannot agree on changes, the court may permit modification if it finds that the proposed
modification is necessary to permit the reorganization of the employer. In addition, all creditors,
the employer, and all other affected parties must be treated fairly and equitably, and the
authorized representative must have refused to accept the proposal without good cause.
Type of Labor Organization
Whether or not an employer is in bankruptcy, the benefits promised to current retirees and future
retirees (i.e., active employees), and the risks assumed by the current retirees and future retirees,
may depend on the type of labor union (or association) involved. The National Labor Relations
Act (NLRA, P.L.74-198, as amended) recognizes the right of employees to engage in collective
bargaining through representatives of their own choosing. The NLRA, however, does not
recognize a right of retirees to form a union, or to engage in collective bargaining.20
The relationship between labor and management in bankruptcies involving collective negotiations
depends on whether the union is a single-employer union (such as the UAW), a multiemployer
union (such as the UMWA), or an association (such as the DSRA). A union’s membership
generally coalesces around a type of work done by that group of employees. Union workers in
20 For more information on the NLRA, see CRS Report R42526, Federal Labor Relations Statutes: An Overview, by
Gerald Mayer, Jon O. Shimabukuro, and Benjamin Collins.
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U.S. firms are more likely to be paid by the hour than are many nonunion workers, who are often
paid an annual salary.21
Most unions are single-employer unions where representatives of one employer’s management
and the union (on behalf of the employer’s employees) bargain over the terms and conditions of
employment. These terms and conditions generally include wages, hours of work, sick days,
vacation days, health insurance, retiree benefits, and many other aspects of work.22 The
bargaining results in a contract, which is known as a collective bargaining agreement (CBA). Any
employee who could be a member of the union, based on his or her occupation and perhaps other
factors, is subject to the terms of the CBA even if the employee chooses not to join the union.23
Multiemployer unions represent employees of more than one employer in a single industry, and
frequently negotiate the same employee benefit plan for all eligible employees of many
employers. These plans are referred to as Taft-Hartley plans, and are relatively more likely to be
found in industries where employees frequently move among different employers.24 CBAs with
Taft-Hartley plans ensure that union members can keep their pensions, health insurance, and all
other benefits as they move from one employer to the next, because the union members are
covered by the same CBA at their various places of employment. Unions in the trucking and
construction industries often offer Taft-Hartley benefit plans.
Finally, some groups of active employees and/or retirees, sometimes known as associations,
partly behave like unions, even though they are not officially certified as unions. In the current
context, groups of retirees can form associations in order to facilitate the negotiations required by
the Bankruptcy Code. It should be noted that the term association is not legally defined; there is
nothing to prevent a union from calling itself an association. For example, the National Education
Association is a union.25 In addition, some representatives of the employers call themselves an
association such as the coal industry’s Bituminous Coal Operators Association (BCOA).
Type of Employee
When bargaining over the terms and conditions of employment, either two or three categories of
workers are typically considered. Single-employer unions may bargain on behalf of active
employees and retired employees. (These categories are related because active employees may
someday become retired employees.) Both active and retired employees may face the loss of at
least some of their retiree benefits should the single employer become insolvent or otherwise be
unable to fund the promised benefits.
21 For more information on the relationship between union status and salaried employment, see Daniel S.
Hammermesh, “12 Million Salaried Workers are Missing,” Industrial and Labor Relations Review, vol. 55, no. 4 (June
22, 2002), pp. 657-658.
22 The NLRA specifies which terms and conditions of employment must be subject to bargaining, may be subject to
bargaining, and must not be subject to bargaining.
23 Employees do not have to join the union or pay union dues in so-called “right to work” states. For more information,
see CRS Report R42575, Right to Work Laws: Legislative Background and Empirical Research, by Benjamin Collins.
24 The Labor Management Relations Act of 1947 (P.L. 80-101) is commonly known as the Taft-Hartley Act. Although
the majority of the act restricted the power of unions, the act also clarified the conditions under which unions and
employers can use employer funds to provide pensions and other employee benefits to unionized employees. This part
of the Taft-Hartley Act can therefore be viewed as a precursor to ERISA.
25 For more information, see http://www.nea.org/home/18469.htm.
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Multiemployer unions, however, are also associated with a third type of employee: the orphan
retiree. An orphan retiree is a retiree who is covered by a multiemployer CBA entitling him or her
to benefits from an employer that is no longer solvent. However, other employer signatories to the
contract are solvent. In other words, the multiemployer CBA may specify that an employer is
obligated to pay for the retiree’s benefits, but the employer is unable or unwilling to do so for a
variety of reasons; it may be entirely out-of-business, in bankruptcy proceedings, otherwise
lacking funds, or refusing to pay the benefits. This retiree then becomes an orphan retiree. Other
employers who are signatories to the CBA are expected to pay benefits for the orphan retirees. In
this case, a solvent employer may find itself funding retiree benefits for individuals who were
never employed by the company.
Employer Agreements with its Former Subsidiaries
Some employers entering chapter 11 bankruptcy, such as Old GM, have a long history as
independent firms. Other employers, however, were recently part of a larger entity. For example,
Delphi was once a division of Old GM and Patriot was once a part of Peabody Energy. The
process by which Delphi and Patriot became independent employers is known as a spin-off, and
Old GM and Peabody were the parent employers. The protections for retirees in bankrupt
companies that were once a part of larger enterprises depend on the spin-off arrangements
negotiated between the union and the parent company. In some cases, the parent company
assumes responsibility for the pensions and/or retiree health benefits of the employees transferred
to the new spin-off company.
The next three sections of this report discuss protections for employee pensions, protections for
retiree health insurance, and other health insurance protections available for retirees.
Protections for Retirees’ Pensions:
The Pension Benefit Guaranty Corporation
Background
The Employee Retirement Income Security Act of 1974 (ERISA, P.L. 93-406) protects the
interests of participants in certain employee benefit plans.26 ERISA requires that benefit plans be
operated solely in the interest of the participants and their beneficiaries and for the exclusive
purpose of providing benefits to participants and their beneficiaries. It protects employees’
pensions by establishing vesting requirements (how long an employee has to work to be entitled
to benefits); funding requirements (how much the employer must set aside to pay for current and
future benefit obligations); and pension insurance (which will pay retiree benefits in case of the
plan sponsor’s bankruptcy). Pension obligations must be prefunded by the employer, and the
present value of the plan’s assets must be large enough to cover the present value of the plan’s
liabilities.27
26 CRS Report RL34443, Summary of the Employee Retirement Income Security Act (ERISA), by Patrick Purcell and
Jennifer A. Staman.
27 Present value is the current worth of a future sum of money or stream of cash flows given a discount rate. The higher
(continued...)
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ERISA pension insurance covers private-sector defined benefit (DB) pension plans. A DB plan
typically pays a set monthly amount after the employee’s retirement. The specific amount paid is
often based on a combination of the employee’s salary and years of service. Some DB plans,
however, offer the benefit as a fixed lump-sum payment. Under ERISA, participants in DB plans
do not own the pension plan assets, but have a claim on the amount of their vested benefits.
Pension plan sponsors may not reduce workers’ vested pension benefits.28 In addition, employee
pension trust funds are not part of the bankruptcy estate available to satisfy creditor claims.
ERISA established the Pension Benefit Guaranty Corporation (PBGC) to insure the pension
benefits of workers in private sector DB plans. The PBGC says it has “protect[ed] more than 42
million workers and retirees in private defined benefit pension plans ...by encouraging companies
to keep their plans, and by paying benefits when they cannot.”29 To fund its benefit obligations,
the PBGC collects insurance premiums from employers that sponsor insured pension plans,
receives funds from the pension plans it takes over, and earns money from investments. The
insurance premiums are set by Congress.30 The benefits to retirees paid by the PBGC do not come
from taxpayer funding, and the benefit obligations of the PBGC are not obligations of the United
States.31 Pensions disbursed by the PBGC to any retiree may not exceed a statutorily guaranteed
limit.
The PBGC has a stated goal of avoiding the termination of plans in cases of bankrupt companies:
Even after a company enters bankruptcy, we work to try and preserve its plans. We take an
active role in bankruptcies to prevent unnecessary plan terminations, and to pursue claims on
behalf of the plan participants, and the pension insurance program.32
The PBGC maintains two separate insurance programs: one for single-employer pension plans
and one for multiemployer pension plans. A single-employer pension plan is maintained by one
employer for its eligible employees. A multiemployer plan is maintained under a collective
bargaining agreement by more than one employer for all of their eligible employees. In 2013, the
PBGC single-employer plan had a deficit of $27.4 billion, while the multiemployer plan had a
deficit of $8.3 billion.33
(...continued)
the discount rate, the lower the present value of the future cash flows. The choice of discount rate is critical to an
accurate valuation of future liabilities.
28 Defined contribution (DC) plans are a second type of pension plan where the employee owns the assets as soon as
the plan is vested. However, DC plans do not promise a set value at retirement. DC plans include profit-sharing and
401(k) plans.
29 Pension Benefit Guaranty Corporation, Helping Secure Retirements, Annual Report 2013, p. 4,
https://www.pbgc.gov/Documents/2013-actuarial-report.pdf.
30 Insurance premiums are updated periodically, and depend on the risks of ongoing coverage by the PBGC. The
American Academy of Actuaries argues that legacy costs should be incorporated into the premium-setting process. For
more information, see American Academy of Actuaries, Examining the PBGC Premium Support Structure, Issue Brief,
April 2012, http://actuary.org/files/publications/IB_on_PBGCPremium_120426.pdf.
31 ERISA 4002 §1302(g)(2) and 29 U.S.C. §1302(g)(2).
32 Pension Benefit Guaranty Corporation, Excellence in Customer Service, Annual Report 2012, p. 15,
https://www.pbgc.gov/documents/2012-annual-report.pdf.
33 Pension Benefit Guaranty Corporation, Helping Secure Retirements, Annual Report 2013, p. 26,
https://www.pbgc.gov/Documents/2013-actuarial-report.pdf. For more information, see CRS Report RS22624, The
Pension Benefit Guaranty Corporation and Single-Employer Plan Terminations, by Jennifer A. Staman and Erika K.
Lunder.
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Single-Employer Plans
The PBGC protects the pension benefits of about 35 million active and retired employees in about
23,000 single-employer pension plans.34 The PBGC categorizes single-employer pension plan
terminations into three categories.
• A standard termination occurs when the employer’s plan has sufficient funding
to cover future benefits and distribute all plan benefits as insurance company
annuities or lump sum payments.35 In this case, the PBGC’s role is solely to
ensure compliance with the plan termination rules of ERISA.
• A distress termination occurs when the employer’s plan does not have sufficient
assets to pay all the promised benefits. The PBGC determines whether the
employer meets at least one of four financial distress tests.36 In this case, the
PBGC becomes the plan’s trustee and uses its own assets to insure that retirees
and future retirees receive the benefits to which they are entitled, up to the
guaranteed limit.
• An involuntary termination occurs when the PBGC chooses to terminate a
pension plan, even if the employer has not started termination proceedings of its
own accord. Involuntary plan termination occurs when the PBGC believes that
the plan owners can no longer fulfill their responsibility to pay the current and
future retirees their pension benefits as they become due.
The PBGC maximum guarantee for a pension plan terminated in 2014 is $4,943 per month
($59,318 per year) for retirees who begin receiving pensions at the age of 65.37 If a participant in
a terminated pension plan had been promised a pension greater than $4,943 a month from the
employer, he or she would receive a reduced monthly pension from the PBGC because of the
statutory maximum benefit.
Multiemployer Plans
The PBGC insures the pensions of about 10 million active and retired employees in about 1,400
multiemployer pension plans.38 Benefit contributions for multiemployer plans are usually based
on employer contributions in proportion to their current (covered) employment. The employer
contributions may also be tied to some measure of employer output such as the number of items
produced, tons of coal mined, or gross sales. Most multiemployer plans are governed by a board
34 Pension Benefit Guaranty Corporation, Helping Secure Retirements, Annual Report 2013, p. 4,
https://www.pbgc.gov/Documents/2013-actuarial-report.pdf.
35 In this context, an annuity is a fixed amount of money paid periodically over time to the retiree.
36 The four conditions are listed at Pension Benefit Guaranty Corporation, Plan Termination Fact Sheet, p. 2,
http://www.pbgc/gov/res/factsheets/page/termination.html.
37 Amounts are reduced so that retirees receive actuarially neutral pension benefits if they begin receiving benefits
before the age of 65 or in a non-standard form. One example of a non-standard form is a joint and survivor annuity,
which must have at least two annuitants. Payments are continued as long as one of the annuitants is alive. Pension
Benefit Guaranty Corporation, PBGC Maximum Insurance Benefit Increases for 2014, Press Release, November 6,
2013, http://www.pbgc.gov/news/press/releases/pr13-13.html.
38 Pension Benefit Guaranty Corporation, Helping Secure Retirement, Annual Report 2013, p. 4, http://www.pbgc.gov/
Documents/2013-annual-report.pdf.
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of trustees, with equal representation from employers and employees. Contributions are held in a
trust fund, and assets in the plan never revert back to contributing employers.
There are various categories to describe a multiemployer plan’s funded status. A plan is in critical
status if at least one of five conditions holds. For example, one condition is that the plan’s ratio of
assets to liabilities is less than 65% and the value of the plan’s assets and contributions will be
less than the value of the benefits within five years.39 Multiemployer pension plans in critical
status must adopt a rehabilitation plan (a range of options that will allow the plan to emerge from
critical status during a 10-year rehabilitation period). In addition, the employers that sponsor
plans in critical status may not increase pension benefits during the rehabilitation period.40
A plan is in endangered status if 1) the plan is less than 80% funded or 2) the plan is underfunded
in the current year or is projected to be underfunded in one of the next six years. A plan is in
seriously endangered status if the plan meets both criteria for endangered status. Multiemployer
plans in endangered status must adopt a funding improvement plan that will reduce the plan’s
underfunding by 33% during a 10-year funding improvement period. Multiemployer plans in
seriously endangered status must adopt a funding improvement plan that will reduce the plan’s
underfunding by 20% during a 15-year funding improvement period. Plans in endangered status
or seriously endangered status may not increase pension benefits during the funding improvement
period.41
An employer may leave a multiemployer pension plan for a variety of reasons, including when
the employer goes out of business, negotiates a new CBA, or moves the business out of the
pension plan coverage areas. An employer that withdraws from a pension plan may be assessed
withdrawal liabilities.42
Multiemployer pension plans may become insolvent when the plan is unable to pay its benefit
obligations. Unlike single-employer plans, multiemployer plans cannot be terminated as part of
any employer’s bankruptcy proceedings. When a multiemployer plan becomes insolvent, the
PBGC provides a loan to the trustees of the pension plan, and the pension plan uses the loan to
pay benefits. The PBGC never becomes the trustee of a multiemployer plan. Because many
multiemployer pension plans face financial difficulties, the PBGC calls itself “flexible when
plans propose new rules governing employer liability.”43 Among other innovations, the PBGC has
attracted new employers by limiting their legacy liabilities.
39 For a complete description of the conditions, see Department of Labor, The Department of the Treasury, and the
Pension Benefit Guaranty Corporation, Multiemployer Pension Plans: Report to Congress Required by the Pension
Protection Act of 2006, January 2013, p. 37, http://www.pbgc.gov/documents/pbgc-report-multiemployer-pension-
plans.pdf.
40 For more information, see CRS Report R43305, Multiemployer Defined Benefit (DB) Pension Plans: A Primer and
Analysis of Policy Options, by John J. Topoleski, p. 7.
41 For more information, see CRS Report R43305, Multiemployer Defined Benefit (DB) Pension Plans: A Primer and
Analysis of Policy Options, by John J. Topoleski, p. 8.
42 Pension Benefit Guaranty Corporation, Helping Secure Retirements, Annual Report 2013, p. 6, http://www.pbgc.gov/
documents/2013-annual-report.pdf.
43 Pension Benefit Guaranty Corporation, Excellence in Customer Service, Annual Report 2012, p. 8,
http://www.pbgc.gov/documents/2012-annual-report.pdf.
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The PBGC maximum guarantee for an insolvent multiemployer pension in 2013 is $1,073 per
month ($12,870 per year) for those who retire with 30 years of work at age 65.44 This maximum
benefit level from the PBGC may be less than the retiree would have received under the original
CBA.
The overall financial health of the PBGC multiemployer pension trust is in some doubt.45 For
example, the multiemployer trust reported a net loss of $3.02 billion in fiscal year (FY) 2012, up
from a net loss of $2.47 billion in FY2011. In addition, the PBGC’s projections indicate that there
is a 50% chance that the multiemployer insurance program will be insolvent by the end of
FY2022 and a 90% chance of insolvency by the end of FY2025.46 Two multiemployer pension
plans are thought to be a particular threat to the multiemployer trust’s overall solvency. Although
the PBGC does not name the plans, one is in the “agriculture, mining, and construction” industry
category.47
Protections for Retirees’ Health Insurance: VEBAs
ERISA does not require retiree health insurance benefits to be prefunded. In practical terms, even
if a retiree was contractually promised $400 a month in health insurance benefits, the employer is
not required to have $400 a month available. In addition, retiree health insurance claims are
neither secured nor priority in bankruptcy. Therefore retirees have no guarantee that they will
actually receive any of the benefits they were promised in a CBA. One way to guarantee at least
some funding for health insurance benefits is for the (active and/or retired) employees to form a
Voluntary Employees’ Beneficiary Association (VEBA). VEBAs are tax-advantaged trust funds,
first created by the Revenue Act of 1928. VEBAs can finance many types of employee benefits,
including retiree health insurance benefits (but not pensions).48
VEBAs historically were owned by a single employer. More recently, however, many newly-
created VEBAs are structured as a trust independent of the employer. These trusts are sometimes
termed independent VEBAs, new VEBAs, or stand-alone VEBAs. An independent VEBA must
be controlled by its membership, by independent trustees, or by other fiduciaries designated by
the membership. Trustees chosen by a CBA are considered designated by the membership.
VEBAs have been created or modified both as part of bankruptcy proceedings and as part of the
normal course of business in healthier entities. In all cases, the trust acts in the fiduciary interest
of the employees. Nevertheless, the creation of a VEBA cannot be characterized as a victory for
44 For details on this calculation, see the worksheets at http://www.pbgc.gov/prac/multiemployer/multiemployer-
benefit-guarantees.html#2. This is the most recent year for which data are available.
45 For more information, see CRS Report R43305, Multiemployer Defined Benefit (DB) Pension Plans: A Primer and
Analysis of Policy Options, by John J. Topoleski.
46 Pension Benefit Guaranty Corporation, FY 2013 PBGC Projections Report, p. 1, http://www.pbgc.gov/documents/
Projections-report-2013.pdf.
47 Pension Benefit Guaranty Corporation, Excellence in Customer Service, Annual Report 2012, p. 35,
http://www.pbgc.gov/documents/2012-annual-report.pdf.
48 Rules for VEBAs are found in IRC §501(c)(9). This section covers VEBAs used for health insurance in a workplace
with a union, association, or other group of workers sharing a common bond. The regulations concerning the tax
deductibility of VEBA income depend on the union status of the workplace, the particular employee benefits the VEBA
funds, and other factors. VEBAs provide tax savings when they cover health insurance in an organized workplace.
Much of the information in this section is drawn from archived CRS Report R41387, Voluntary Employees’
Beneficiary Associations (VEBAs) and Retiree Health Insurance in Unionized Firms, by Carol Rapaport.
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either the employer or the employees; each individual VEBA differs with respect to funding
levels and other terms, and the funding levels and other terms themselves depend on the relative
bargaining power of the employer and employees.
Advantages Associated with VEBAs
VEBAs, as tax-exempt instruments, provide the employer incentives to prefund health benefits.49
More specifically, contributions to some VEBAs are tax deductible, and the investment income
sometimes grows tax-free. In addition to these tax advantages, VEBAs can improve an
employer’s financial position. Employers are required by the Financial Accounting Standards
Board (FASB), which establishes financial and reporting standards for private-sector U.S. firms,
to use accrual accounting when calculating liabilities for retiree health benefits; in other words,
the employer’s liability increases as the number of employees eligible for benefits, along with the
expected amount of these benefits, increases. This liability must be reported on the firm’s balance
sheet, where a particularly large liability value can depress the firm’s market value. Removing the
firm’s liability for current and future benefits by transferring the benefits to a VEBA (independent
of the employer) can sometimes increase the market value of the employer. This increase in
market value is a primary advantage of a VEBA for the employer.
A primary advantage of a VEBA for the employee is a reduction in the risk associated with
actually receiving promised retiree benefits. If the employer has already deposited funds into a
dedicated retiree health VEBA, these funds must go to their intended recipients. They may never
revert back to the employer. In many instances, without a VEBA, the employees have no recourse
if an employer lacks the funds to pay for promised retiree health benefits. If an employer falls
short, or simply decides to place its money elsewhere, no law or regulation compels the firm to
honor past promises.
Risks Associated with VEBAs
The presence of a VEBA does not automatically remove all the risk to the employee, because the
VEBA itself must have assets and income. For current and future retirees to receive promised
benefits there must be sufficient funds in the VEBA to cover the cost of benefits. A VEBA that
contains sufficient funds to cover the expected costs of the benefits over the life of the VEBA is
known as a fully funded VEBA. Several scenarios can prevent VEBAs from being fully funded.
First, the calculations of the funding needed for the VEBA to cover the expected costs of the
retiree benefits may have been incorrect. Second, the employer may not have contributed the
amount necessary to fully fund the VEBA. In any case, federal law does not require that VEBAs
be fully funded.
Funding VEBAs
The amount of money necessary to fully fund the VEBA cannot be calculated easily.50 For
illustrative purposes, consider a firm that wants to cover retiree health insurance for the 10,000
49 Archived CRS Report R41387, Voluntary Employees’ Beneficiary Associations (VEBAs) and Retiree Health
Insurance in Unionized Firms, by Carol Rapaport, pp. 3-4.
50 Ellen O'Brien, What Do the New Auto Industry VEBAs Mean for Current and Future Retirees?, AARP Public Policy
Institute, Publication #14, March 2008.
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employees who were actively working on December 31, 2013, plus their surviving spouses and
dependents. The calculation of the level of funding needed to meet such a guarantee typically
involves forecasting the following variables:51
• the expected date of retirement for each employee working on December 31,
2013;
• each employee’s (and his or her covered family’s) life expectancy;
• each employee’s (and his or her covered family’s) health care utilization over
time;
• the rate of medical inflation over time;
• the return on the VEBA trust’s assets over time; and
• changes in the tax code affecting the value of the VEBA.
If any of these forecasts prove to be incorrect, then the amount of money needed to fully fund the
VEBA over the course of its lifetime would be calculated incorrectly.52
The calculation becomes more complicated if future employees (i.e., those who are not yet hired)
are eligible for retiree health benefits funded from the VEBA. The number of such employees,
together with the years in which they will start work and ultimately retire, must also be estimated.
Calculating the fully funded level for an employer that has terminated the availability of benefits
for new hires is therefore easier than calculating the fully funded level for a financially healthy
employer that intends to continue offering retiree health benefits to new hires.
Some VEBAs are created as part of the course of doing business, while others are created during
chapter 11 bankruptcy proceedings. A VEBA may also be negotiated as part of a standard CBA,
and then modified during bankruptcy proceedings. Financial negotiations can be contentious. A
percentage of the amount needed to fully fund the VEBA is negotiated. As would be expected, the
employees prefer to receive as close to 100% of the fully-funded amount as possible, while the
employer prefers that the percentage be as small as possible. Additionally, the composition of the
funding must be agreed upon. The employer can transfer any number of assets to the VEBA,
including cash and notes. If the union accepts stock in the company as a VEBA funding source,
the resulting situation becomes unusual in that a trust fund acting on behalf of the employees
becomes a partial owner of the company.
Protections for Retirees: Other Programs
Apart from the PBGC, there are no federal programs that provide pension benefits to retirees
whose former employer cannot meet its pension obligations. On the other hand, retirees may have
a number of additional health insurance options available to them.
Retirees who no longer have access to health insurance through their former employer(s) may be
able to obtain coverage through Medicare, Medicaid, health insurance offered through the
51 Archived CRS Report R41387, Voluntary Employees’ Beneficiary Associations (VEBAs) and Retiree Health
Insurance in Unionized Firms, by Carol Rapaport, p. 5.
52 It is theoretically possible that two or more forecasting errors could offset each other.
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exchanges established by the Patient Protection and Affordable Care Act of 2010 (ACA, P.L. 111-
148 as amended by P.L. 111-152) or, in the case of some chapter 11 bankruptcies, Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA, P.L. 99-272). Retired
individuals who have End Stage Renal Disease as well as those who are disabled or aged 65 or
older generally will be eligible for Medicare. Some lower-income individuals may become
eligible for Medicaid in states that chose to expand their Medicaid program. Additionally, the
health insurance exchanges established by ACA became active on January 1, 2014. Retirees can
purchase health insurance policies through the exchanges; however, only those who are ineligible
for Medicare and Medicaid will be eligible for premium credits and cost-sharing subsidies,
provided they meet income and perhaps other requirements.
Under COBRA, employers are required to permit employees and family members to continue
their group health insurance coverage at their own expense, but at group rates, if they lose
coverage because of designated work or family-related events.53 Among the “qualifying events”
that trigger COBRA’s continuation coverage is an employer’s filing a case under the Bankruptcy
Code. The retired employee is eligible for COBRA continuation coverage for life, and his or her
spouse and dependents are eligible for continuation coverage for 36 months. This continuation
coverage, however, is contingent upon the employer maintaining a health insurance plan for
active employees.
Two additional congressionally authorized programs have provided retiree funding in the past few
years, but have expired. First, Section 1102 of ACA authorized $5 billion in funding for the Early
Retiree Reinsurance Program (ERRP).54 The ERRP reimburses employers for especially high
health insurance claims incurred by early retirees. The early retirees themselves do not receive
any reimbursements from this program. Rather, the reimbursements are used to fund various cost-
savings and other improvements to the employer’s provision of health insurance. The ERRP
began accepting for reimbursement claims incurred on or after June 1, 2010, and was closed to
new enrollees as of May 6, 2011, because expenditure projections indicated that the $5 billion
would be exhausted by the employers already enrolled. The authorization for the ERRP ended on
January 1, 2014.
Second, the Health Coverage Tax Credit (HCTC), a federal income tax credit, has subsidized
72.5% of the cost (premiums) of qualified health insurance for eligible taxpayers and their family
members.55 Eligibility for the HCTC is limited to three groups of taxpayers, two of which are
individuals eligible for the Trade Adjustment Assistance (TAA) program. The third group consists
of individuals whose pension plans were taken over by the PBGC. This credit expired on January
1, 2014, and new enrollees must have registered before October 1, 2013.56
The remainder of this report provides three examples of bankruptcy proceedings in unionized
entities where the retirees’ pensions and health insurance benefits received substantial federal
attention. The first example is Old General Motors and the United Auto Workers, the second
53 This paragraph is taken from archived CRS Report RL33138, Employment-Related Issues in Bankruptcy, by Robin
Jeweler, pp. 8-9.
54 The information in the paragraph is from CRS Report R43048, Overview of Private Health Insurance Provisions in
the Patient Protection and Affordable Care Act (ACA), by Annie L. Mach, p. 21.
55 The information in this paragraph is from archived CRS Report RL32620, Health Coverage Tax Credit, by
Bernadette Fernandez.
56 The information in this paragraph is from Internal Revenue Service, http://www.irs.gov/Individuals/The-Health-
Coverage-Tax-Credit-%28HCTC%29-Program.
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example is Delphi and the Delphi Salaried Retirees Association, and the final example is Patriot
and the United Mine Workers of America.
Case Study 1:
General Motors and the United Auto Workers
Background
On June 1, 2009, the General Motors Corporation filed a chapter 11 bankruptcy petition. On July
5, 2009, the bankruptcy court approved the sale of the company’s “good” assets in a “section 363
sale.
” The sale closed on July 10, 2009.57 The buyer was a newly formed corporation that, after
the sale was completed, changed its name to General Motors Company.58 In this report, “Old
GM” is used to refer to General Motors Corporation, and “New GM” is used to refer to General
Motors Company.
Funding supplied by the Troubled Asset Relief Program (TARP) was instrumental in the
restructuring of Old GM. TARP was a part of the Emergency Economic Stabilization Act of 2008
(EESA, P.L. 110-343).59 EESA was originally intended to purchase assets and equity from
financial institutions, but was extended to the automobile industry by President George W. Bush
in 2008 and further financial assistance was granted by President Barack Obama in 2009. In total,
Old GM and New GM together received $50.2 billion in financial support from the Department
of the Treasury.60
Pensions
Old GM maintained separate pension trusts for hourly and salaried workers. Unionized
employees hired prior to October 15, 2007, are eligible for DB pensions.61 The amount of the
pension was negotiated and depends on the number of years of service, with a supplemental
amount for early retirees with at least 30 years of service.62 Taken together (that is, including New
GM employees represented by any of its unions plus nonunionized employees) New GM
57 Motors Liquidation Company, Court Documents and Claims Register, General Information,
http://www.motorsliquidationdocket.com/.
58 Media reports at the time widely reported the event as GM emerging from bankruptcy; however, the company that
entered bankruptcy in June remained in bankruptcy after the sale, although its name was changed to “Motors
Liquidation Company.” General Motors Company was a completely new company. See e.g., David Bailey, “GM
Emerges from Chapter 11 Bankruptcy,” Reuters, July 13, 2009, http://blogs.reuters.com/great-debate-uk/2009/07/13/
gm-emerges-from-chapter-11-bankruptcy/; “A Leaner GM Zooms Out of Bankruptcy,” Associated Press, July 10,
2009, http://www.nbcnews.com/id/31826205/ns/business-autos/t/leaner-gm-zooms-out-bankruptcy/#.UzmZwoVxD3U;
“A ‘New’ GM Emerges From Bankruptcy,” National Public Radio, July 10, 2009, http://www.npr.org/templates/story/
story.php?storyId=106459662.
59 Special Inspector General for the Troubled Asset Relief Program, SIGTARP 13-003, August 15, 2013, p.1.
60 For a full description of the GM assistance under TARP, see CRS Report R41978, The Role of TARP Assistance in
the Restructuring of General Motors, by Bill Canis and Baird Webel.
61 Those hired on or after this date may participate in defined contribution pension plans.
62 General Motors, Annual Report, 2012, p. 123.
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pensions were underfunded by $17.1 billion at the end 2009.63 Despite this underfunding,
pensions were not a central bargaining issue in the late 2000s. There was virtually no debate over
UAW pensions during the bankruptcy process, and no changes were made to the pension plans.64
Pension controversies did emerge after the bankruptcy. Concerned about possible large increases
in their required pension contributions, New GM offered some salaried workers a buy-out in
2012; these workers could accept a lump-sum payment in exchange for giving up all rights to any
other kind of pension support. About 30% of 44,000 eligible, salaried workers accepted this
offer.65 Additionally, New GM has spoken of giving the UAW workers the option of trading their
promised DB pensions for a lump-sum payment.
Retiree Health Insurance
Old GM has historically provided generous health insurance coverage. In 2005, the then-
Chairman and CEO of Delphi remarked, “Some have said GM is actually a giant HMO that
happens to make cars!”66 Over time, however, the cost of providing this insurance proved to be
high. For example, it was reported that health care costs were the single largest component of the
growing disparity in labor costs between the domestic and foreign automakers.67 A 2007
memorandum of understanding covering post-retirement medical care states that UAW and Old
GM have “discussed that the current cost of providing post-retirement medical care is one of the
most critical issues facing the Company’s ability to compete in the North American
marketplace.”68
During the 2007 contract negotiations, Old GM agreed to contribute a percentage of its projected
retiree health liabilities to an independent VEBA intended to fund retiree health benefits for 80
years. Following their initial VEBA contributions in 2007, Old GM would also make additional
contributions to the VEBA beginning in 2008. According to one analyst, Old GM contributions
were projected to fund about 68% of their future retiree health obligations over the life of the
VEBA (in present value terms).69 The 2007 contract stipulated that GM was responsible for
funding retiree health until January 1, 2010. On that date, the VEBA (officially known as the
UAW Retiree Medical Benefits Trust) took over all funding responsibilities for retiree health
insurance from GM. Only those retirees (and their eligible spouses, surviving spouses, and
dependents) eligible for retiree medical benefits from Old GM as of October 15, 2007, can
participate in the VEBA.70
63 General Motors, Annual Report, 2010, p. 89.
64 CRS analysis of contractual documents.
65 Deepa Seetharaman, “GM spends $3.6 billion on lump-sum pension buyouts,” Reuters, October 31, 2012.
66 The Associated Press,"Remarks by Delphi Corp. Chairman and CEO Robert “Steve” Miller on Friday,” The
Associated Press State and Local Wire, October 28, 2005, http://www.wallstreet-online.de/discussion/1016181-421-
430/super-meldung-bei-delphi, BC cycle.
67 Bill Vlasic, “Seeking the right balance; Carmakers need cuts; union fights to preserve what it has,” The Detroit
News, July 17, 2007, p. 1A.
68 Form 8-K, Ex. 10-1, Memorandum of Understanding, Post-Retirement Medical Care, September 26, 2007,
http://online.wsj.com/public/resources/documents/gmfiling20071015.pdf.
69 Ellen O'Brien, What Do the New Auto Industry VEBAs Mean for Current and Future Retirees?, AARP Public Policy
Institute, Insight on the Issues, March 2008, p. 7, http://assets.aarp.org/rgcenter/econ/i4_veba.pdf.
70 UAW, UAW Retiree Medical Benefits Trust, no date, p. 49. In addition, some Delphi retirees are eligible to
participate.
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The VEBA is one trust with three separate accounts, one each for New GM, Ford, and Chrysler.
The assets in each account are separate, and one automaker’s account cannot be used to fund
benefits for another automaker. Nevertheless, the VEBA files a single tax return. The VEBA is
managed by an independent board of 11 trustees appointed by the UAW and the bankruptcy court
as part of the bankruptcy settlement agreements with New GM and Chrysler.71
Because Old GM had a large debt load and no cash flow when it entered bankruptcy, the UAW
accepted a contribution of stock in New GM. The restructuring agreement made the UAW a
partial owner of New GM. Such an ownership structure is not typical of bankruptcy decisions.
When the VEBA became the source for retiree health benefits on January 1, 2010, the VEBA held
$14.5 billion in investment assets, 17.5% of New GM’s common stock, New GM’s preferred
stock with a face value of $6.5 billion, and a note with a face value of $2.5 billion.72 Because
New GM’s common stock was not publically traded at that time, there was great uncertainty
associated with the ultimate value of owning 17.5% of the common stock.73 The VEBA
ownership in New GM fell from 17.5% in 2009 to 9.2% in 2014 as the VEBA sold stock.74
It is difficult to evaluate the performance of a trust fund designed to last 80 years after the passage
of only five years. Nevertheless, the VEBA officers have emphasized the investment risks when
communicating with the membership. In particular, they have mentioned the “market meltdown”
of 2008 and early 2009, and the uncertainty associated with projections of future medical costs.75
In fact, the 2011 contract negotiations covered the possibility of diverting up to 10% of profit
sharing to the VEBA.76
The most recent legislation concerning the Old GM bankruptcy was introduced in the 111th
Congress, and concerned the use of TARP funding in the bankruptcy proceedings. The bills were
H.R. 4118, H.R. 6046, and S. 3526.
71 Ford never filed for bankruptcy.
72 Letter from UAW Retiree Medical Benefit Trust to UAW GM Retiree or Surviving Spouse, May 17, 2010,
http://www.uawtrust.org/AdminCenter/Library.Files/Media/501/Trust%20Communications/GM/
GM%202010%20letter.pdf.
73 When the U.S. Treasury sold a block of New GM stock through an initial public offering in fall 2010, it was priced at
$33 per share. It later fell to a low of about $19 per share, climbed to more than $41 per share, and traded just over $33
a share on August 5, 2014.
74 CRS Report R41978, The Role of TARP Assistance in the Restructuring of General Motors, by Bill Canis and Baird
Webel.
75 Letter from UAW Retiree Medical Benefits Trust to UAW GM Retiree or Surviving Spouse, May 17, 2010,
http://www.uawtrust.org/AdminCenter/Library.Files/Media/501/Trust%20Communications/GM/
GM%202010%20letter.pdf.
76 Kristin Dziczek, An Analysis of the 2011 UAW-Detroit Three Contracts, and a Look Ahead to 2015 Talks, Center for
Automotive Research (CAR), Nineteenth Annual Automotive Outlook Symposium, Federal Reserve Bank of Chicago,
June 1, 2012, http://www.chicagofed.org/digital_assets/others/events/2012/aos/dziczek.pdf.
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Case Study 2: Delphi and the Delphi Salaried
Retirees Association
Background
The Delphi Corporation supplies parts and components directly to vehicle manufacturers. Delphi
was originally a part of Old GM, was spun off into its own public company in 1999, and
continues to have New GM as its primary customer.77 As part of the spin-off agreement, Old GM
and the UAW negotiated the benefits of union employees who were being moved from Old GM
employment to Delphi employment. Old GM agreed to cover the pension benefits for Delphi
employees (former Old GM employees) who retired prior to October 1, 2000. The pension
benefits of employees who retired on or after October 1, 2000, became the obligations of the
various Delphi pension plans.78
In addition, Old GM entered into a benefit guarantee agreement with the UAW covering
employees whose pensions might be taken over by the PBGC in the future. In the event of a
termination of the Delphi pension plans for hourly workers, the guarantee agreement obligated
GM to supplement the benefits for workers who received the statutory maximum benefit from the
PBGC. In other words, GM agreed to a “top-up” for each covered UAW retiree. A top-up is a
payment of the difference between the benefit received from the PBGC and the benefit that would
have been received had the plan not been terminated. Salaried employees were not UAW
members and were not covered by this top-up guarantee.
In October 2005, Delphi entered chapter 11 bankruptcy. Delphi emerged from bankruptcy in
October 2009 after a group of Delphi’s lenders purchased most of Delphi’s assets; New GM also
assumed some of the Delphi assets.
The PBGC assumed responsibility for Delphi’s DB pension plans in July 2009. In total, the
pension plans had almost 70,000 participants and were underfunded by about $7.2 billion,
according to the PBGC.79
This case study focuses on a group of Delphi salaried retirees who did not have the protections of
a CBA. These retirees did not receive the same pension and retiree health benefits as the
unionized retirees. On one hand, the salaried workers never had contractual rights to the benefits
that the union workers had. On the other hand, the salaried workers argued that it was only fair
that they receive the same benefits as their unionized coworkers. To pursue this matter, many of
the Delphi salaried workers formed the Delphi Salaried Retirees Association (DSRA). The DSRA
was recognized as an authorized representative of the retired employees by the bankruptcy court.
77 The entire world-wide entity, including all subsidiaries, is named Delphi Automotive PLC. This report covers the
American subsidiary, which is named The Delphi Corporation; see Exhibit 21.1 of the SEC Form 10-K available at
http://investor.delphi.com/phoenix.zhtml?c=245477&p=irol-sec.
78 CRS Report R42076, Delphi Corporation: Pension Plans and Bankruptcy, by John J. Topoleski.
79 A Delphi retirees group, however, has stated that its “plan was very adequately funded when it was terminated.”
Delphi Salaried Retirees Association, “What Are We Fighting For?” press release, August 12, 2013,
https://www.delphisalariedretirees.org/delphi/index.php/what-we-are-fighting-for.
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Pensions
Both Old GM and New GM might have been able to invalidate the top-up agreement with Delphi
during the bankruptcy proceedings. Nevertheless, New GM said that it honored its top-up
agreement with the UAW for commercial reasons.80 One reason cited was that these union
members needed to give their consent to finalize the sale of assets in Delphi’s bankruptcy and the
top-up would speed bankruptcy proceedings.81 In addition, New GM topped-up pensions for
members of two other unions that comprised large shares of its workforce: the International
Union of Electricians-Communication Workers of America (IUE-CWA); and the United Steel,
Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers Union
(USW). New GM maintained that it was not contractually obligated to give retired members of
these two unions top-ups. Once the PBGC assumed responsibility for the remaining Delphi
pensions, some Delphi salaried retirees (who were not union members) saw their pension benefits
reduced because their monthly benefit (as previously promised by Delphi) was larger than the
statutory maximum benefit. New GM did not top-up these salaried workers’ pensions. New GM
argued that it had no contractual obligation to do so.82
When the Delphi plans were terminated in 2009, the maximum benefit from the PBGC was
$54,000 per year for an individual who retired at age 65 with no survivor benefit. As of June
2011, the PBGC estimated that 18% of the total number of salaried retirees would see their
pension benefits reduced to this amount, while 1% of the total number of hourly workers would
see their total pension benefits reduced to this amount.83
The DSRA argued that all parties, including the federal government, were treating salaried
workers less well than hourly workers. In particular, the DSRA argued that the top-up funding
came from TARP as part of the Old GM restructuring.
On September 14, 2009, the DSRA filed a lawsuit against the PBGC, the U.S. Treasury
Department, and the Presidential Task Force on the Auto Industry. One of the DSRA’s claims was
that the agreement between New GM and the unions representing hourly employees to top-up the
hourly employees’ pensions was a violation of the Equal Protection Clause of the Fifth
Amendment to the U.S. Constitution. The DSRA argued that New GM, acting as a government
agent because of TARP’s role in the Old GM bankruptcy, unfairly discriminated against the
salaried employees “solely on the basis of their choice not to associate with a union.”84 The
DSRA argued that Old GM’s bankruptcy in June 2009 voided the 1999 top-up agreements and
that New GM renegotiated and provided the top-up to the unions’ pension plans for political
80 A. Nicole Clowers, Statement of A. Nicole Clowers, Director of Financial Markets and Community Investment
Issues, Government Accountability Office, July 10, 2012, Opposite the Cover Page, http://gao.gov/assets/600/
592225.pdf.
81 U.S. Congress, House Oversight and Government Reform Committee, Subcommittee on Government Operations,
Statement of Steven Rattner, 113th Cong., 1st sess., September 11, 2013, p. 2.
82 CRS is not aware of any other top-up agreements beyond those discussed in this paragraph.
83 Delphi employed a small number of hourly workers who were members of “splinter unions;” these unionized retirees
did not receive top-up pension benefits. See U.S. Government Accountability Office, Delphi Pension Plans: GM
Agreements with Unions Give Rise to Unique Differences in Participant Benefits, GAO-12-168, December 2011, pp.
34-35, http://www.gao.gov/products/GAO-12-168.
84 Black et. al. v. Pension Benefit Guaranty Corporation et. al, Second Amended Complaint, paragraph 37,
https://www.delphisalariedretirees.org.
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reasons. On September 9, 2011, the U.S. district court dismissed the claims against the U.S.
Department of the Treasury. The PBGC remains a defendant in the case.
The DSRA submitted an affidavit from a pension actuary stating that the PBGC miscalculated the
benefit obligations of the Delphi pension plans and that the pension plan for salaried employees
was 86.5% funded at termination.85 It also said that it was rare for pension plans with this amount
of funding to require termination. According to PBGC estimates, at the time of termination the
plans for the Delphi salaried employees had $2.4 billion in assets and $5.0 billion in liabilities;
the plan was therefore only 48% funded. The PBGC indicated that it expected to be responsible
for about $2.2 billion of the plan’s estimated $2.6 billion in underfunding. The Delphi court case
remains ongoing; recently, a U.S. district judge ordered the U.S. Department of the Treasury to
turn over documents related to President Barack Obama’s Auto Task Force’s role in the
termination of the salaried pension plan.86
There is some difference of opinion concerning Old GM’s contractual obligation to honor
previous top-up commitments to the UAW Delphi hourly workers. Both the Government
Accountability Office (GAO) and the Office of the Special Inspector General for the Troubled
Asset Relief Program (SIGTARP) argue that the UAW was treated with special care because it
could influence the bankruptcy proceedings and/or call a strike.87 However, the GAO writes that
the “Treasury did not explicitly approve or disapprove of GM’s agreement to honor previously
negotiated top-up agreements.”88 On the other hand, SIGTARP quotes a Treasury official that “it
is my understanding that as the buyer, we got to determine which liabilities [we would take
on].”89
Although no top-up commitment was ever given to the Delphi salaried workers, the DSRA argues
that the salaried workers should enjoy the same benefits as the hourly workers. This position
rested on a notion of “fairness” without regard to contractual obligations. Nevertheless, the DSRA
did not have current employees at New GM, and, therefore, could not slow down bankruptcy
proceedings.
Retiree Health Insurance
The process of establishing health benefits for Delphi’s current and future retirees took less time
than the still-ongoing pension process. The DSRA created a VEBA committee, and the
bankruptcy court accepted this committee as the Section 1114 committee.90 The negotiations
between Delphi and the Section 1114 committee proceeded according to the rules of the
85 This paragraph is taken from CRS Report R42076, Delphi Corporation: Pension Plans and Bankruptcy, by John J.
Topoleski, pp. 8-9.
86 “Judge Orders Treasury to Produce Delphi Documents in Pension Suit,” The Detroit News, June 20, 2014,
http://www.detroitnews.com/article/20140620/AUTO0103/306200109.
87 Nick Bunkley, “GM Rightly Favored Delphi UAW Pensions Over Salaried, Rattner Says,” Automotive News,
September 11, 2013.
88 U.S. Government Accountability Office, Delphi Bankruptcy: Termination of Delphi Pension Plans, GAO-12-909T,
July 10, 2012, Back of Title Page, http://www.gao.gov/assets/600/592225.pdf.
89 Special Inspector General for the Troubled Asset Relief Program, Treasury's Role in the Decision for GM To Provide
Pension Payments to Delphi Employees, Troubled Asset Relief Program, August 15, 2013, Introduction, http://www.
sigtarp.gov/Audit%20Reports/SIGTARP_Delphi_Report.pdf.
90 Details on a Section 1114 committee are provided in an earlier section of this report.
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Bankruptcy Code. Delphi eventually agreed to provide $8.75 million in up front funding for the
VEBA. The funding was in cash; the VEBA did not receive any Delphi stock. When the
bankruptcy court accepted the agreement, only salaried workers who were retired or eligible to
retire on or before April 1, 2009, were eligible to receive health insurance benefits from the
VEBA. Nevertheless, the trust agreement was amended by its own trustees such that it could
provide its benefit plans to hourly retirees of Delphi and their dependents and survivors. As a
result, if the hourly retirees preferred the health insurance plans offered by the DSRA VEBA, they
could enroll in these plans at their own expense instead of the plans offered by Delphi. The hourly
retirees, however, could receive no funds from the VEBA.
The DSRA VEBA, which is formally known as the Delphi Salaried Retirees Association Benefit
Trust, opened with the $8.75 million Delphi contribution in 2009.91 Delphi has provided no
additional contributions since that time. To date, the largest source of additional VEBA funding
has been the Early Retiree Reinsurance Program. Most recently, the DSRA was advocating for an
extension of the now-expired Health Coverage Tax Credit (HCTC), for which they are eligible
because their pensions were taken over by the PBGC.92 Several bills introduced in the 113th
Congress would extend the HCTC for varying lengths of time. These bills are H.R. 2783, S.
1446, and S. 1859.
Case Study 3: Patriot Coal and the United Mine
Workers of America
Background
Federal involvement in retiree pensions and health insurance in the coal industry has a long
history in the United States. Following World War II, the United Mine Workers of America
(UMWA) demanded health and retirement benefits from coal employers. When these benefits
were not forthcoming, the miners staged a walkout. To avoid a shutdown of American coal
production, President Harry Truman signed an executive order seizing all of the nation’s
bituminous coal mines.93 The Secretary of the Interior, Julius Krug, was ordered to negotiate an
agreement with the UMWA President John L. Lewis. The Krug-Lewis Agreement, signed on May
29, 1946, established the UMWA Health and Retirement Funds. Congress has been involved in
the operations of coal mines ever since.94
The current structure of pension and retiree health benefits in the coal industry is spelled out in
the most recent National Bituminous Coal Wage Agreement (NBCWA), a CBA between the
UMWA (a multiemployer union) and the Bituminous Coal Operators Association (BCOA), whose
91 The information in this paragraph is from the DSRA Benefit Trust, Quarterly Financial Report, 2012 Q4, Unaudited,
Sources and Uses of Funds, available at http://www.dsrabenefittrust.net/dsrabene/index.php/document-center/DSRA-
Benefit-Trust-Documents/Financials/financials-2012/DSRA-BT-2012-Q4-Financial-Report-Post.
92 For more information, see WHIO, Channel 7, March 10, 2014, https://www.youtube.com/embed/ZwVoc9m2T-c?
rel=0;autoplay=1;loop=0;wmode=opaque.
93 Bituminous is the softest form of coal.
94 For more information on federal involvement in the coal industry, see Memorandum Decision and Order on Motion
to Reject Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§1113 and 1114,
pp. 8-12.
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members represent the owners of the coal mines.95 The most recent NBCWA was negotiated in
2011 and extends through 2016. It includes, among other terms and conditions of employment,
details covering the pension plan and three retiree health funds used by signatory employers.
All plans contain an “evergreen clause” or “continuing contributions clause” to provide for the
long-term financing of pensions and health benefits for retired employees and orphan retirees.96
Thus, all employers who are (or ever were) members of the pension plan or any health plan must
contribute, including employers who are not current members of the BCOA. In other words,
employers who were once signatory employers to any NBCWA must continue to contribute to all
pension and health insurance trust funds until the CBA is changed. Employers are therefore
responsible for maintaining benefits for miners who may never have been their employees.
Patriot filed for chapter 11 bankruptcy protection in July 2012 and emerged from bankruptcy in
December 2013. Patriot was formed in 2007 as a spin-off company from Peabody Energy. The
following year, Patriot purchased Magnum Coal, itself a spin-off of Arch Coal. Consequently,
Patriot entered bankruptcy with about three times as many retirees, inherited from Arch and
Peabody, compared to active employees. The two parent employers had an improved financial
picture following the spin-off; for example, the present value of Peabody’s retiree health
obligations was reduced by $637.6 million.97 Patriot, however, was left with an estimated present
value of over $1.6 billion in retiree health obligations, an amount the bankruptcy court called
“astronomical.”98 In addition, Patriot had been receiving funding from the Early Retiree
Reinsurance Program, but additional funding from this source is no longer available.
Pensions
The 1974 Pension Trust (the Trust) was established by collective bargaining and covers all
employees whose employer was a signatory employer to the NBCWA one or more times. The
Trust documents detail the required contributions of the employers and the benefits received by
the eligible retirees under a wide variety of conditions. This Trust pre-dates the Coal Act. Patriot
is now the Trust’s second largest contributor.
At the time of the Patriot bankruptcy filing, the Trust was less than 73% funded and had a status
of “seriously endangered.”99 As discussed above, the 2012 PBGC annual report acknowledges
that were this Trust unable to meet its pension obligations, the financial position of the PBGC
might be threatened.100
95 The NBCWA reflects congressional actions, including Title XIX, Subtitle C, Health Care of Coal Miners (P.L. 102-
486, enacted in 1992, and commonly referred to as the Coal Act) and Title II, Subtitle B, Coal Industry Retiree Health
Benefit Act (P.L. 109-432, enacted in 2006, and commonly referred to as the Amendments to the Coal Act), and the
Surface Mining Control and Reclamation Act of 1977 (P.L. 95-87, SMCRA).
96 As discussed above, an orphan retiree is a retiree who has a multiemployer CBA entitling him or her to benefits from
an employer that is no longer solvent.
97 Patriot Coal, Form 10-K, p. 20, filed with the Securities and Exchange Commission on February 22, 2013.
98 Memorandum Decision and Order on Motion to Reject Collective Bargaining Agreements and to Modify Retiree
Benefits Pursuant to 11 U.S.C. §§1113 and 1114, p. 24.
99 As discussed above, a plan is in seriously endangered status if the plan’s funding ratio is less than 80% and the plan
has a funding deficiency in the current year or is projected to have one in the subsequent five years.
100 Pension Benefit Guaranty Corporation, Excellence in Customer Service, Annual Report 2012, p. 35,
http://www.pbgc.gov/documents/2012-annual-report.pdf.
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The Effect of Firm Bankruptcy on Retiree Benefits
The Patriot bankruptcy negotiations ended with Patriot remaining a participant in the 1974
Pension Trust. Patriot covers current retirees, surviving spouses, and dependents under the
existing terms. In addition, active employees hired before January 1, 2012, are covered.
Employees hired on or after January 1, 2012, will not be eligible for the 1974 (defined benefit)
Pension Trust, but will have a (defined contribution) 401(k) retirement plan.
Retiree Health Insurance
As with the automotive industry, the coal industry provides generous health benefits. The UMWA
says that it sacrifices wage increases for employees in exchange for better health insurance
because miners face many occupational health challenges.101
Coal employers usually maintain their own retiree health plans. However, some employees,
especially those whose former employers are no longer mining coal or are bankrupt, have access
to one of three UMWA retiree health care funds. Each fund has its own trustees, and the trustees
are responsible for paying premiums and benefits and for investing the assets of their respective
trust fund.
• The Combined Benefit Fund (CBF) is a trust fund created by the Coal Act. It
provides retiree health benefits for UMWA employees (and their surviving
spouses and dependents) who retired on or before July 20, 1992, and did not have
another source of retiree health benefits because they were orphan retirees. The
currently-proposed legislation (discussed below) does not affect the CBF.
• The 1992 Benefit Trust is a trust fund created by the Coal Act. It provides retiree
health benefits to those employees (and their surviving spouses and dependents)
who retired from the coal industry after July 20, 1992, but before September 30,
1994, and do not have another source of retiree health benefits. The major
difference between the 1992 Benefit Trust and the CBF is that under the 1992
Benefit Trust, the premiums paid by each signatory coal company are adjusted
each year to meet the expected health care costs of the beneficiaries. The 1992
Trust is therefore better able to keep pace with increases in health care costs than
the CBF.
• The 1993 Benefit Trust covers employees who retired on or after October 1994.
In addition, new, inexperienced miners hired after January 1, 2007, cannot
receive benefits from this Trust unless they are disabled as a result of a mine
accident. The 1993 Benefit Trust is therefore almost entirely closed to new
enrollees.102 The 1993 Benefit Trust was created through negotiation between the
UMWA and the BCOA as part of the NBCWA of 1993. Retired miners are
eligible for the 1993 Benefit Plan if their past employers either went out of
business or defaulted in providing retiree health benefits. The NBCWA specifies
the required contributions of the BCOA members for active employees, retired
employees, and orphan employees. Note that the bargained level of funding need
101 U.S. General Accounting Office, Retired Coal Miners' Health Benefit Funds: Financial Challenges Continue,
GAO-02-243, April 2002, p. 21, http://www.gao.gov/assets/240/234405.html. Compensation for employees with black
lung disease, however, primarily comes from its own funding source and was not an issue in the bankruptcy
proceedings.
102 See Patriot Coal, Form 10-K, p. 21, filed with the Securities and Exchange Commission on February 22, 2013.
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not correspond with the funding level required to maintain the contractual level
of health care benefits for its members.
At the start of the chapter 11 bankruptcy proceedings, Patriot spoke of eliminating retiree health
insurance benefits entirely. The UMWA’s Section 1114 committee started negotiations, but the
bankruptcy court ruled in favor of Patriot’s Section 1113 and Section 1114 motions. Therefore
Patriot no longer had to honor the existing NBCWA, and no longer had to honor previous
commitments to provide retiree health insurance to UMWA retirees (or any other current or future
retirees). The court’s ruling was viewed unfavorably by the UMWA, and the union threatened to
strike. Patriot and the UMWA then began negotiations that included contributions to a new
VEBA.
These negotiations became irrelevant when the United States Bankruptcy Appellate Panel for the
8th Circuit reversed an earlier bankruptcy court decision. The original bankruptcy court would
have allowed Peabody Energy to stop paying the health care benefits for certain retirees that it
had agreed to at the time of the Patriot spin-off. The appellate decision requires Peabody to take
responsibility for paying the health care benefits for these retirees. After another round of
negotiations, the Peabody case was settled with Peabody contributing $90 million to the VEBA in
2014, $75 million in 2015, $75 million in 2016 and $70 million in 2017, in addition to other
requirements.103
Recent Legislation
Several bills have been introduced in the 113th Congress that would change the benefits awarded
to current and future retirees in the coal industry.
• H.R. 980 and S. 468, Coal Accountability and Retired Employee (CARE) Act of
2013, would transfer part of the interest earned on a coal mine land reclamation
fund to the 1974 UMWA Pension Trust to be used to pay pension benefits
required under this plan without regard to whether Pension Trust participation is
limited to individuals who retired in or after 1976. The act would make those
who would be eligible to receive benefits from the 1974 UMWA Pension Trust
following an insolvency proceeding relating to a coal operator eligible for the
1992 Trust.
• H.R. 2627, The Caring for Coal Miners Act, would make retired miners who are
not receiving benefits they are otherwise entitled to because of a bankruptcy
commencing in 2012 eligible for the 1993 Benefit Trust. Benefits made available
by this act would be reduced by the amount actually paid by the VEBA on behalf
of a covered beneficiary, so that no beneficiary receives a greater benefit than
would have been payable before the establishment of the VEBA.
• H.R. 2918, The Coal Healthcare and Pensions Protection Act of 2013, would
make retired miners who are not receiving benefits they are otherwise entitled to
103 In re Patriot Coal Corporation et. al., Notice and Motion of the Debtors for Entry of an Order Pursuant to 11 U.S.C.
§§105(a), 363(b), 1113 and 1114(e) and Fed. R. Bankr. P. 9019(a), Approving the Settlement With Peabody Energy
Corporation, and the UMWA, On Behalf of Itself and in its Capacity as Authorized Representative of the UMWA
Employees and UMWA Retirees, document 5163, http://patriotcaseinformation.com/maincase.php?start_no=4901&
end_no=5000.
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because of a bankruptcy commencing in 2012 eligible for the 1993 Benefit Trust.
Benefits made available by this act would be reduced by the amount actually paid
by the VEBA on behalf of a covered beneficiary. Any additional monies (except
the amount needed to cover administrative costs) would be transferred from the
VEBA to the 1993 Trust. Any remaining excess monies would be transferred to
the 1974 UMWA Pension Trust.
All four bills introduced in the 113th Congress would increase the health benefits available to
Patriot retirees. The CARE Act of 2013 would allow Patriot retirees to join the 1992 Benefit
Trust, and thus receive the most generous benefits available to any orphan retiree. The Caring for
Coal Miners Act would allow those who became orphan retirees as a result of a bankruptcy
proceeding commencing in 2012 to join the 1993 Benefit Trust. However, the 1993 Benefit Fund
would be prohibited from covering expenses on behalf of a beneficiary that was already covered
by the VEBA. The Coal Healthcare and Pensions Protection Act of 2013 would allow those who
became orphan retirees as a result of a bankruptcy proceeding commencing in 2012 to join the
1993 Benefit Trust, and would transfer all monies from the VEBA to this Trust. Any extra funding
after healthcare obligations have been fully met would be transferred to the 1974 UMWA Pension
Trust.
Of the four bills introduced in the 113th Congress, only two would definitely increase the funding
available to the 1974 Pension Trust. The CARE Act of 2013 would move some of the interest
earned on a coal mine land reclamation fund to the 1974 Pension Trust. This move, however,
would reduce the funds available to two health benefit trust funds. The Coal Healthcare and
Pensions Protection Act of 2013 would transfer any extra funding after healthcare obligations
have been fully met to the 1974 UMWA Pension Trust.
Author Contact Information
Carol Rapaport
Analyst in Health Care Financing
crapaport@crs.loc.gov, 7-7329
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