Bankruptcy & Finance

The Cap On Priority Claims For Employee Benefit Plans Is Applied Fund-By-Fund

by Michael Enright

There is not a great deal of precedent regarding bankruptcy priority claims for employee benefit funds, and the statute (11 U.S.C. Section 507(a)(5)) is confusing, so a recent opinion from the 7th Circuit is welcome. In Algozine Masonry Reconstruction, Inc. v. Local 52 Chicago Area Joint Welfare Committee (In re Algozine Masonry Reconstruction, Inc.), No. 20-3384 (7th Cir. July 26, 2021) the court was faced with a dispute regarding application of the priority claim cap for employee benefit plans under the Bankruptcy Code. Three different employee benefit plans (the Welfare Fund, the Pension Fund and the Annuity Fund, all required by a collective bargaining agreement) sought allowance of priority claims, and the debtor sought to cap the claims of the three funds in aggregate, while the employee benefit plans sought individual caps for each fund’s claim. The funds prevailed based on the plain meaning of the statute as construed by the court.  As the court noted, Section 507(a)(5) “allows ‘each such’ employee benefit plan to file priority claims for services rendered within the applicable period.” The court followed that up by actually doing the math on calculating the claims right in its opinion, creating a helpful guide for anyone struggling with the determination. Although the issue decided may seem quite straightforward, disputes like this are common in the employee benefit plan claim process, and the opinion is a source of guidance and comfort for those faced with filing and pursuing such claims in the face of the convoluted language of the statute.




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