Monthly pension benefits paid to a survivor under a supplemental pension plan do not qualify for protections afforded to “retiree benefits” under Section 1114, according to Bankruptcy Judge Stuart M. Bernstein of Manhattan.
Having found the statute ambiguous, Judge Bernstein reached his conclusion relying largely on legislative history.
Avaya’s Supplemental Plan
The chapter 11 debtor, Avaya Inc., had established a supplemental pension plan with a single life annuity paid monthly after retirement to eligible retirees. The supplemental plan was an unfunded excess benefit plan under ERISA and an unfunded plan primarily to provide pension and deferred compensation benefits to highly compensated workers.
Upon the death of a retiree, the plan provided survivor benefits paid monthly in the same amount to the surviving spouse. In the case at bar, a surviving widow had been receiving monthly survivor’s benefits for about two years when Avaya filed for reorganization.
On filing, Avaya ceased all payments under the supplemental plan. The widow filed a motion seeking a declaration that her monthly benefits qualified for protections afforded to “retiree benefits” under Section 1114.
In his Sept. 18 opinion, Judge Bernstein ruled that the widow’s benefits did not qualify.
LTV and the Section 1114 Definitions
Judge Bernstein explained how Congress adopted Section 1114 in 1988 in response to the decision by LTV Corp. to halt retirees’ health and life insurance benefits after filing its chapter 11 petition. Absent court authorization following detailed procedures required by Section 1114, debtors now must continue providing “retiree benefits.”
The pivotal provision in the statute is the definition of “retiree benefits” in Section 1114(a). Under that section, “‘retiree benefits’ means . . . payments for retired employees and their spouses . . . for . . . benefits in the event of sickness, accident, disability, or death . . . .”
The Survivor’s Argument
Judge Bernstein said there was “universal agreement” that the payments to the husband, had he been living at the onset of bankruptcy, would have been pension benefits not falling under the protections of Section 1114.
The surviving wife contended that her benefits were not an unprotected pension but were death benefits preserved by Section 1114.
To reach a conclusion, Judge Bernstein declined to employ a plain meaning analysis because he said the statute was “facially ambiguous.” Consequently, he consulted legislative history.
Judge Bernstein cited the Senate Report and statements made on the floor of the House and Senate emphasizing “that the purpose of the legislation was to preserve retiree benefits related to health, disability, and life insurance.”
Ruling against the surviving wife and saying she could only participate in Avaya’s plan under a class of similarly situated general unsecured creditors, Judge Bernstein ruled that the husband’s death did not “transmute a pension payment into a ‘retiree benefit’ protected by section 1114.”
Judge Bernstein agreed with decisions in the WorldCom Inc., Lyondell Chemical Co. and Exide Technologies chapter 11 cases involving similar but not identical issues.