Benefits for retired employees are of particular interest to policymakers, who often are concerned with the income security of retirees, a large and fast-growing population. One aspect of this congressional concern is what happens when bankrupt employers are unable to provide promised pension and health benefits to their retired employees. This report explores the protections of benefits awarded retirees and future retirees of bankrupt private-sector employers under current law. Although there are many types of employee benefits, active employees, retirees, and the employers themselves are often especially concerned with postretirement pensions and health insurance benefits, usually the two largest components of these so-called legacy costs . This analysis provides examples from two industries of interest to Congress where competitive pressures resulted in changes in each sector's business outlook: automobiles and coal. Automotive Industry . The bankruptcy of the General Motors Corporation (Old GM) in 2009 was the fourth-largest bankruptcy in U.S. history, and it was accompanied by a period of federal aid to the automotive industry. Two distinctive features of the Old GM bankruptcy were that federal financing was important to the ultimate outcome (and subsequent retiree benefits) and that the outcome was associated with a particularly strong labor union—the United Auto Workers (UAW). The report also focuses on the Delphi Corporation, an automobile parts supplier whose salaried retirees attempted to receive the benefits that hourly UAW retirees received. Hourly UAW hourly employees at Delphi had received contractual promises regarding their benefits from Old GM in the pre-bankruptcy period. Salaried workers at Delphi had received no such contractual promises. To facilitate increasing their benefits, salaried retirees formed their own labor association, the Delphi Salaried Workers Association (DSRA). Coal Industry . The United Mine Workers of America (UMWA) represents more than 73,000 coal miners. Congress has periodically passed legislation covering retiree benefits for coal miners since at least the 1940s. In October 1992, passage of the Coal Act protected health benefits for some retired coal miners. In 2006, trust funds covering health insurance for retired miners received federal assistance. Various proposals dealing with pensions and health benefits provided by bankrupt coal employers have been advanced over the last several years. These proposals were influenced by the July 2012 bankruptcy of the Patriot Coal Corporation, an employer with coal mines in West Virginia. These three case studies are not necessarily representative of all chapter 11 bankruptcy proceedings of large, unionized firms. Indeed, as case studies, they are not necessarily representative of all bankruptcy proceedings of large, unionized firms in industries in which Congress has become involved. Nevertheless, they do provide some evidence of how the federal government deals with retiree benefits in industries in which competitive pressures have changed. This report begins with a discussion of whether bankrupt firms can invalidate previous commitments covering retiree pensions and health insurance. It next discusses the specific protections accorded to retiree pensions and health insurance benefits. Certain types of pensions are guaranteed by a quasi-public agency, but no such guarantee exists for retiree health insurance. The report concludes with brief case studies of the bankruptcies of Old GM, Delphi, and Patriot. Whether retirees and future retirees receive their promised pensions and health insurance benefits depends on many factors. Four are discussed in this section: (1) the type of bankruptcy (e.g., chapter 7 or chapter 11) and the relevant provisions of the Bankruptcy Code; (2) the type of labor organization (e.g., union, association, or not organized); (3) the type of employee (e.g., active employee or retired employee); and (4) the legal relationship between the bankrupt employer, any subsidiaries, and any parent company. Employers generally file one of two forms of bankruptcy: chapter 7 (liquidation) or chapter 11 (reorganization). The bankruptcies filed by companies in the automotive and coal industries generally have been filed under chapter 11; therefore, this report will focus on chapter 11 bankruptcies after providing background information on both types. Chapter 7 of the Bankruptcy Code is designed for liquidation. For businesses, this generally involves complete cessation of the business and disposition of all assets. An employer files for chapter 7 bankruptcy when it believes that no amount of reorganization (including restructuring and financial modifications) would make its business profitable. Under chapter 7, a trustee is appointed to preside over the consolidation and ultimate distribution of the employer's assets. The assets either would be sold or would be transferred to the employer's creditors. In either case, the value of the assets would be used to reimburse claimholders in a prescribed manner. Those with secured claims would be paid first. Remaining assets then would be used to pay select unsecured claims. If the assets were sufficient to pay all the priority claims in full, the remaining assets would be used to pay the unsecured, non-priority claims on a proportional basis. Any claim for retiree health or pension benefits would be both unsecured and non-priority. In short, employers in chapter 7 bankruptcy usually are unable to fund any retiree health benefits and are able to pay pension benefits only if their pension trust fund has sufficient assets. Chapter 11 bankruptcy proceedings generally involve a plan to restructure a business so that it may become viable. In other words, a debtor (often the employer) filing under chapter 11 generally expects its obligations to be reorganized so that the business can continue to exist. Under chapter 11, the debtor generally remains in possession of the assets and continues to operate. The debtor here is known as the debtor in possession . The debtor in possession operates the business. In some cases, a buyer may be found for some or all of the assets. However, no assets may be sold outside of the normal course of business without the approval of the bankruptcy court. Retiree benefits do not automatically end when a company files under chapter 11. Two sections of the Bankruptcy Code govern the law determining retiree benefits before the debtor sells assets under chapter 11. Section 1113 covers the rejection of a collective bargaining agreement (CBA) for unionized firms, and Section 1114 covers the payment of retiree health insurance in both unionized and nonunionized firms. Section 1113 covers the conditions under which a debtor in possession may reject a CBA by either modifying or terminating it. Although the employees (through their union) can be expected to argue that the negotiated benefits should continue to be awarded, the bankruptcy court may allow the debtor in possession to alter or terminate the CBA using the following procedure. The debtor in possession must first supply the authorized representative of the employees (usually a union officer) information justifying the need for modifying the employees' benefits and protections. The employees (through the union negotiator) and employer then engage in good-faith negotiations with respect to proposals for alteration or termination of the CBA. If the parties cannot negotiate an agreement, the debtor in possession requests that the court alter or terminate the CBA. The court may take this step upon finding that the following conditions have been met: 1. The debtor in possession provided the authorized representatives of the employees with the necessary information, 2. The authorized representative has refused to accept the proposal without good cause, and 3. On balance, fairness favors voiding the CBA. This section of the Bankruptcy Code applies only to unionized workplaces because nonunion workplaces will not have a CBA. Employees who have formed an association are nonunion employees. Section 1114 covers the conditions under which the debtor in possession may terminate or modify retiree health benefits, whether or not the employees are operating under a CBA. Section 1114 is modeled after Section 1113 and requires similar findings by the court to allow the debtor in possession to terminate or modify retiree health insurance benefits. The debtor in possession must first negotiate proposed modifications in benefits with an authorized representative of the retirees. If they cannot agree on changes, the court may permit modification if it finds that the proposed modification is necessary to permit the reorganization of the employer. In addition, all creditors, the employer, and all other affected parties must be treated fairly and equitably and the authorized representative must have refused to accept the proposal without good cause. Whether or not an employer is in bankruptcy, the benefits promised to current retirees and future retirees (i.e., active employees), and the risks assumed by the current retirees and future retirees, may depend on the type of labor union (or association) involved. The National Labor Relations Act (NLRA; P.L. 74-198, as amended) recognizes the right of employees to engage in collective bargaining through representatives of their own choosing. The NLRA, however, does not recognize a right of retirees to form a union or to engage in collective bargaining. The relationship between labor and management in bankruptcies involving collective negotiations depends on whether the union is a single-employer union (such as the UAW), a multiemployer union (such as the UMWA), or an association (such as the DSRA). A union's membership generally coalesces around a type of work done by that group of employees. Union workers in U.S. firms are more likely to be paid by the hour than are many nonunion workers, who often are paid an annual salary. Most unions are single- employer unions in which representatives of one employer's management and the union (on behalf of the employer's employees) bargain over the terms and conditions of employment. These terms and conditions generally include wages, hours of work, sick days, vacation days, health insurance, retiree benefits, and many other aspects of work. The bargaining results in a contract, which is known as a collective bargaining agreement (CBA). Any employee who could be a member of the union, based on his or her occupation and perhaps other factors, is subject to the terms of the CBA even if the employee chooses not to join the union.