Jan 27, 2008

ERISA puts pensioners at the front of the line of corporate liabilities

As of Labor Day 1974, the capital structure of every firm with an unfunded vested pension liability was altered. The Employment Retirement Income Security Act (ERISA) gave these liabilities a claim equal to a federal tax lien; that is, senior to debentures, bank loans, and the claims of other corporate creditors. Prior to ERISA, the legal claims of beneficiaries were limited to the assets of the pension fund.

~ Linda J. Martin and Glenn V. Henderson, Jr., "On Bond Ratings and Pension Obligations: A Note," Journal of Financial and Quantitative Analysis, December 1983

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