Multiemployer Defined Benefit Pension Plan May Have Priority In Bankruptcy

The U.S. Court of Appeals for the Third Circuit recently ruled that a multiemployer defined benefit plan has priority over general unsecured creditors in bankruptcy proceedings but only in certain limited circumstances. See In re Marcal Paper Mills, Inc., 650 F.3d 311 (3d Cir. 2011). Specifically, if an employer withdraws from a plan after it files for bankruptcy, the portion of the plan’s withdrawal liability claim attributable to work performed after the filing of the bankruptcy petition takes priority over the claims of general unsecured creditors. Thus, the employer’s bankruptcy estate must pay that portion of withdrawal liability ahead of general creditors. The Third Circuit reasoned that wages and benefits paid to workers after a bankruptcy petition are necessary to continue the operations of the employer, and therefore, those payments benefit the bankruptcy estate generally. The court also reasoned that withdrawal liability is part and parcel to the employer’s promise to pay pension benefits to its workers. In view of the foregoing, the portion of withdrawal liability attributable to post-petition work is viewed as a so-called “administrative expense” under the Bankruptcy Code which requires such expenses to be satisfied ahead of those by general creditors.