An Analysis of the Treatment of Employee Pension and Wage Claims in Insolvency and under Guarantee Schemes in OECD Countries: Comparative Law Lessons for Detroit and the United States

By Secunda, Paul M. | Fordham Urban Law Journal, March 2014 | Go to article overview

An Analysis of the Treatment of Employee Pension and Wage Claims in Insolvency and under Guarantee Schemes in OECD Countries: Comparative Law Lessons for Detroit and the United States


Secunda, Paul M., Fordham Urban Law Journal


III. PRESENTATION OF THE RESULTS OF OECD COMPARATIVE ANALYSIS OF EMPLOYMENT CLAIM TREATMENT IN INSOLVENCY AND GUARANTEE SCHEMES

This Part is divided into two major subparts. Part III.A seeks to identify trends among the OECD countries as far as treatment of pension and wage claims in insolvency, whether as part of the insolvency process and/or as part of a guarantee fund or scheme. Part III.B, drawing upon the Appendix of OECD country treatment of employment claims in insolvency, seeks to use tables created by the author to categorize the treatment of these employee claims in insolvency to show how the United States and Canada's approach to these issues aligns with other OECD countries.

A. Trends in Treatment of Pensions and Employee Benefits Claims In Insolvency Proceedings Across OECD Countries

In discussing trends in the treatment of pension and employee benefit claims in insolvency proceedings among OECD Countries, a couple of findings are clear. Most OECD countries (and this might be because a majority of OECD countries are EU countries covered by the employee insolvency Directive) have a system that provides some priorities to pensions and wages in bankruptcy (256) and also provides guarantee schemes for pensions and/or wages in employer insolvency scenarios (though more commonly just wage guarantees). (257) The devil is in the details, and distinctions between country treatments of employment claims in insolvency often relate to the way various benefit systems are established or structured. This sub-Part is further broken down into seven preliminary findings based on the OECD analysis, each of which is discussed in turn.

1. State-Run Pension Schemes vs. Statutory Pensions vs. Employer Operated Pensions

This section primarily discusses different approaches adopted by countries to the provisions of pensions and how the choice of approach impacts employees when their companies become insolvent. This Section concludes by also considering different approaches to the provision of other employee benefits and how those choices impact employees during employer insolvency.

a. Pensions

With regard to pension benefits, there is an important distinction between countries with regard to the provision of occupational pension benefits. First, a number of countries have little or no occupational pension scheme, relying instead on state-run social security schemes or voluntary, employee-based contributory schemes. (258) The seven countries in this first category include: Chile, Czech Republic, Estonia, Greece, Hungary, Slovakia, and Turkey. (259) Countries that rely primarily on non-occupational pension systems have little need for priorities in insolvency for employee claims or for pension guarantee schemes, as employer insolvency has little impact on the provision of pensions. (260) Not surprisingly, there are few pension priorities in insolvency and no pension guarantee schemes in these countries. (261)

Second, a large group of mostly EU countries follows a statutory-based occupational pension model, under which the pension fund is established as separate and independent from the company. (262) Employers make contributions to these pension funds (or insurance companies) in most cases, but that is the extent of their funding obligation. (263) The twenty countries that fall into this second category include: Australia, Belgium, Denmark, Finland, France, Iceland, Israel, Italy, Japan, Republic of Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovenia, Spain, and Switzerland. (264) Similar to the first category discussed above, there is little impact on these companies when the employer becomes insolvent, except perhaps for outstanding pension contributions due these external pension funds. (265) As a result, bankruptcy priorities only at most concern outstanding contributions (not unfunded pension liability) and there are few pension guarantee schemes. …

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