Inflation, a tight labor market, high interest rates, ongoing supply chain issues and changing consumer trends have been identified as factors contributing to a significant uptick in corporate bankruptcies filed in 2023. According to a September Market Watch report, there have been more U.S. corporate bankruptcies thus far than in 2021 and 2022 combined.
Some of the bankruptcies have been household names. In October, citing declining sales and legal exposure to mass opioid litigation, Rite-Aid Corporation filed for bankruptcy protection under Chapter 11 and hopes to restructure its national operations. WeWork filed for bankruptcy soon thereafter.
Both short- and long-term employees — aware of the value of the so-called “hidden paycheck” — rightly want to know: “What happens to my employee benefits if my employer chooses to file Chapter 7 or Chapter 11 bankruptcy?”
First the distinction between the two. In a Chapter 7 bankruptcy, the company is ceasing operations and liquidating its assets to pay creditors. In Chapter 11, the company continues operating, while trying to reorganize its finances to stay in business.
Each type of bankruptcy has a different impact on its employees, but the Employee Retirement Income Security Act of 1974, or ERISA, offers some measure of protection for affected employees, regardless of bankruptcy type. ERISA governs retirement plans, including pensions, profit-sharing, and 401(k) plans, in addition to welfare plans such as health, disability...
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