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Benefit Protection: Priority Creditor Rights for Pension Funds

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Author Info
Fiona Stewart ()
Abstract

Underfunded pension funds are in the same position as other creditors when their sponsoring firm becomes insolvent, having to join the queue claiming the remaining assets of the firm. Arguments for granting pension fund priority rights over other creditors are the same as for introducing pension benefit guarantee schemes – i.e. market failure and diversification. Arguments against such a priority position focus around the impact on other creditors and potential disruptions to capital markets.

The OECD’s report on priority pension claims within bankruptcy found that pension claims (unlike wages) rarely receive priority over other creditors. More concerning, it can be difficult for pension fund creditors (being a diverse group without strong financing) to get their voice heard properly within insolvency procedures. Difficulties with providing such priority status to pension creditors stem from problems with changing bankruptcy laws and the strength of other financial creditors. The OECD’s report concludes that priority rights should be given to unpaid and due contributions from the plan sponsor and that care should be taken that pension beneficiaries be treated at least as well as other creditors in any bankruptcy or restructuring process (e.g. ensuring their representation on creditor committees).

Reconnaître aux membres des fonds de pension la qualité de créanciers privilégiés
Les fonds de pension sous-capitalisés se trouvent dans la même situation que les autres créanciers ordinaires lorsque l’entreprise promoteur du plan devient insolvable, espérant recevoir une partie des sommes recouvrées sur les actifs liquidés. Les arguments qui militent pour que l’on reconnaisse la qualité de créanciers privilégiés aux membres des fonds de pension par rapport à d’autres créanciers sont les mêmes que ceux qui militent pour la mise en place de systèmes de garantie des prestations de pension – en l’occurrence la défaillance du marché et la diversification. Les arguments contre tournent autour de l’impact sur les autres créanciers et du risque de perturbation des marchés financiers.

Le rapport de l’OCDE sur le caractère plus ou moins prioritaire des droits à pension en cas de faillite a montré que ces droits (à la différence des salaires) ont rarement priorité sur d’autres types de créances. En outre, il peut être difficile pour les membres des fonds de pension (ceux-ci constituant un groupe divers sans capacité financière forte) de faire entendre leur voix dans les procédures de mise en liquidation. La difficulté qu’il y a à leur reconnaître le statut de créanciers privilégiés vient de la difficulté qu’il y a à modifier le droit des faillites et de la force des autres créanciers financiers. La conclusion du rapport de l’OCDE est que les cotisations de pension exigibles non versées devraient constituer une priorité et qu’il faudrait veiller à ce que les bénéficiaires de droits à pension soient traités au moins aussi bien que d’autres créanciers en cas de faillite ou de restructuration (ils devraient, par exemple, être représentés au comité des créanciers).

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Paper provided by OECD Directorate for Financial and Enterprise Affairs in its series OECD Working Papers on Insurance and Private Pensions with number 6.

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Date of creation: Jan 2007
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Handle: RePEc:oec:dafaab:6-en

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Keywords: creditors créanciers restructuring restructuration pension fund fond de pension règle de financement sous financement cotisation faillite droit prioritaire insolvable créanciers aux fonds de pension funding rule underfunded contribution bankruptcy priority right insolvent pension creditor

Find related papers by JEL classification:
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions
J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions

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