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How The Bankruptcy Date Rule Can Affect Your Benefits

There are many ways the bankruptcy date rule can affect your benefits.

As an example, assume an employee of Company X has 20 years of service as of July 1, 2009, when Company X files for bankruptcy. July 1, 2009, is the bankruptcy filing date. Let's also say the plan ends July 1, 2011, at which point the employee has completed 22 years of service.

In this example, PBGC would not guarantee any benefits the employee earned after July 1, 2009. These pension benefits earned after the bankruptcy filing date are "non-guaranteed benefits" that generally are payable to plan participants only if their plan has sufficient plan assets for them. Thus, in this example, PBGC will guarantee a pension benefit based only on the employee's first 20 years of service (and not the full 22 years). This limitation also applies to your salary or any other factor that changes between the bankruptcy filing date and the date your plan ends, if your plan uses them to determine your benefit.

The bankruptcy filing date — not the date your plan ends — also becomes the basis for applying the legal limitations on your guaranteed pension benefit. In the above example, the maximum insurance limitation would be based on the 2009 levels, not the 2011 levels, because the plan's sponsor filed for bankruptcy in 2009. Also, the phase-in limitation would be calculated using the bankruptcy filing date, not the date the plan ends.

Lastly, the bankruptcy filing date — not the date your plan ends — is the date PBGC uses to determine who is eligible for a benefit in Priority Category 3 and the amount of that benefit. (This means that your PC3 benefit will be the plan benefit payable three years before the bankruptcy filing date, based generally on the plan provisions in effect five years before the bankruptcy filing date.)  You can find more information on our Priority Categories page.

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