Benefits: new bankruptcy law directly impacts plans.The Bankruptcy Abuse Prevention and Consumer Protection Act The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Pub.L. 109-8, 119 Stat. 23, enacted 2005-04-20), provided for significant changes in Bankruptcy in the United States, was passed by the 109th United States Congress on April 14, 2005 and signed into law , signed by President Bush on April 20, has a direct bearing on employee benefit plans, according to the Segal Co.: Funded non-ERISA (Employee Retirement Income Security Act The Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.A. § 1001 et seq. (1974), is a federal law that sets minimum standards for most voluntarily established Pension and health plans in private industry to provide protection for individuals enrolled in these plans. ) pension plans that are tax-exempt under the Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. such as public-sector retirement programs, Section 457 plans, [section]403(b) arrangements--as well as individual retirement accounts (IRAs)--are now protected from creditors in bankruptcy. There is, however, a $1 million ceiling on the protection for amounts held in IRAs, except for amounts rolled over from qualified plans. Amounts deducted from an employee's wages for contributions to a retirement, health or cafeteria plan Cafeteria Plan An employee benefit plan that allows staff to choose from a variety of benefits to formulate a plan that best suits their needs. Also known as "cafeteria employee benefit plan" or "flexible benefit plan". and held by the employer are protected from claims by the employer's creditors. Individuals in personal bankruptcy proceedings can continue repaying loans taken from their retirement plans within the limits set by ERISA See Employee Retirement Income Security Act. ERISA See Employee Retirement Income Security Act (ERISA). or the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. . Cuts made in retiree health coverage within 180 days before the employer files for bankruptcy are to be restored if the employer was insolvent at the time coverage was changed. The priority claim for unpaid contributions owed to a retirement plan for the period just before an employer's bankruptcy filing is increased from $4,925 to $10,000 per participant, and extended to cover unpaid amounts due up to 180 days before the filing. A bankrupt company's ability to offer incentive compensation, retention bonuses and severance payments for executives is severely restricted. The Act also makes it easier to recover unusual amounts paid to insiders under their employment contracts within the two years prior to bankruptcy filing. |
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