Guide-for-Nonprofit-Organizations-Bankruptcy-Issues-FINAL-with-ads

it shows that but for termination of the pension benefit plan, it would be unable to pay its debtsas they come due and would be unable to continue in business.In addition to debtor-driven procedures, the PBGC can initiate an involuntary termination ofthe pension plan under certain circumstances. Specifically, if the PBGC determines that one ofthe following grounds exist, it can initiate involuntary termination proceedings: (1) the plansponsor has not made its required minimum funding contributions to the plan; (2) the plan hasinsufficient funds to pay benefits as benefits become due; (3) there has been a distribution to asubstantial owner under ERISA section 4043(b)(7); or long-term loss to the PBGC can reasonablybe expected to increase unreasonably if the pension plan is not terminated. When the PBGCinvoluntarily terminates a pension plan, it usually becomes the plan trustee and succeeds toterminate liability and other claims against the debtor under the plan. Subsequent to suchtermination, there is often litigation over the size and priority of PBGC’s claims.Second, what happens to OPEB liabilities in bankruptcy? Like pensioners, OPEB planbeneficiaries have claims under the Bankruptcy Code. The Bankruptcy Code addresses theseclaims in sections 1129(a)(13) and 1114. Section 1129(a)(13) is a threshold confirmationrequirement, rather than an independently substantive statute — it requires the debtor tocomply with section 1114 to obtain confirmation of its plan of reorganization. Under section1129(a)(13), a debtor’s plan must ―provide for the continuance after its effective date of paymentof all retiree benefits, as that term is defined in section 1114 of this Title, at the level establishedpursuant to subsection (e)(1)(B) or (g) of section 1114 of this Title, and at any time prior toconfirmation of the plan, for the duration of the period the debtor has obligated itself to providesuch benefits.‖Section 1114, therefore, is the key statute vis-à-vis OPEB plan treatment in bankruptcy. Theprimary thrust of section 1114 is to prevent a Chapter 11 debtor from unilaterally terminating ormodifying OPEB benefits. That goal is most clearly manifested in subsection (e) of the statute,which provides that a debtor ―shall timely pay and shall not modify any retiree benefits.‖ Likesection 1113, section 1114 was passed in response to a famous Chapter 11 case that hademployee treatment issues at its core. This time, though, it was LTV Steel’s bankruptcy casethat caught Congress’ eye, as the debtor in that case sought on the first day of the case toterminate its medical benefits promised to 70,000 retired employees.Section 1114 mirrors section 1113’s procedural and substantive requirements for rejection of alabor contract. Of course, section 1114 applies to retiree benefits, not labor contracts, but thepoint is the same — the statute requires the debtor to jump through certain procedural andsubstantive hoops to modify or reject a retiree benefits program.In most circuits, the threshold issue under section 1114 is whether the benefits under theapplicable OPEB plan have ―vested.‖ If the plan is vested, the debtor must comply with section1114, but if not, the debtor can unilaterally reject the OPEB plan. A plaintiff can show that his orher OPEB benefit has vested if he or she can show a contractual right to that benefit inperpetuity, which cannot be altered without the plaintiff’s consent. Courts are split regardingthe applicable test for determining whether benefits are contractually vested and, thus, thecircumstances under which section 1114 applies. The leading case, Yard-Man, holds that if thebenefits contract is ambiguous, there is an inference that the benefits are vested. Importantly, a54