The Effect of Firm Bankruptcy on Retiree Benefits, with Applications to the Automotive and Coal Industries

[Excerpt] 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. 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