If a debtor has several employee benefit plans eligible for priority claims, is the Section 507(a)(5) cap on the priority claim applied to each benefit plan individually, or does the cap apply to the aggregate of the claims of all of the benefit plans?

Adopting the analysis of Bankruptcy Judge James R. Ahler of Hammond, Ind., the Seventh Circuit held that each benefit plan has a claim up to the cap that today is $13,650 for each employee.

The debtor had three employee benefit plans: a welfare fund, a pension fund and an annuity fund. All were governed by the Employee Retirement Income Security Act, known as ERISA. Each fund filed a claim of its own.

The debtor had about 15 employees. For each of the three funds, the priority claims were about $25,000, $18,500 and $11,500. The total was about $55,500.

The debtor contended that the statutory cap applied to the aggregate of the three claims. Judge Ahler disagreed and allowed the claims as filed.

The district court affirmed, as did Circuit Judge Diane P. Wood in her July 26 opinion. She said that the text of Section 507(a)(5) “unambiguously supports the conclusions” of the lower courts. The section provides for:

            allowed unsecured claims for contributions to an employee benefit plan—

(A) arising from services rendered within 180 days before the date of the filing of the petition or the date of the cessation of the debtor’s business, whichever occurs first; but only

(B) for each such plan, to the extent of—

(i) the number of employees covered by each such plan multiplied by [$13,650];  less

(ii) the aggregate amount paid to such employees under paragraph (4) of this subsection, plus the aggregate amount paid by the estate on behalf of such employees to any other employee benefit plan.

Judge Wood said that the debtor tried “to muddy the waters” regarding a section that is “straightforward.” She said that the section “allows ‘each such’ employee benefit plan to file priority claims.”

Judge Wood laid out a mathematical formula showing that the amounts claimed by each of the three funds were correct. She had “nothing to add” to the reasoning by Judge Ahler. She quoted Judge Ahler for saying that Section 507(a)(5)

clearly contemplates that, in a single bankruptcy case, more than one “employee benefit plan” may file a claim, i.e. “claims for contributions” and that the priority limit set forth therein applies to “each such plan”; which, could only refer to – each claim that is filed in the case by, or on behalf of, an employee benefit plan.