Delaware Doubles Down on Discounting Pension Claims – Intersections Between Bankruptcy Code and ERISA Lead to Steep Reductions
September 2025
A recent decision in the case In re Yellow Corp. et. al. (23-11069) (Bankr. D. Del.) (CTG) exemplifies how the application of discounting principals under the Bankruptcy Code may have significant impacts on certain types of claims, particularly when those claims are also subject to a parallel regime that provides its own discounting framework. In such circumstances, Debtors may be able to find creative methods of heavily reducing otherwise sizable claims, while claims purchases should be mindful of potential risks.
Background
In Yellow, various multi-employer pension plans (“MEPPs”) filed proofs of claim against debtor Yellow Corporation (a freight and trucking company) and its affiliates (collectively, “Yellow” or the “Debtors”), asserting claims for “withdrawal liability” under the Employee Retirement and Security Act (“ERISA”).
To protect a pension against a business’ exit from a pension plan, ERISA provides that businesses that stop contributing to a pension plan (including due to bankruptcy) are liable to that pension plan for an portion of their “unfunded vested benefits” (effectively, amounts that the business would have contributed if it had remained a participant in the plan). This adjusted “unfunded vested benefits” is a withdrawing employer’s “withdrawal liability1.”
In Yellow, the MEPPs collectively asserted billions of dollars in withdrawal liability claims arising from the Debtors’ entry into bankruptcy. These claims made the MEPPs by far the largest unsecured creditors of the Debtors, and, if allowed at the asserted amounts, would have resulted in more value flowing to the MEPPs than to others in the same class.
Background
In Yellow, various multi-employer pension plans (“MEPPs”) filed proofs of claim against debtor Yellow Corporation (a freight and trucking company) and its affiliates (collectively, “Yellow” or the “Debtors”), asserting claims for “withdrawal liability” under the Employee Retirement and Security Act (“ERISA”).
To protect a pension against a business’ exit from a pension plan, ERISA provides that businesses that stop contributing to a pension plan (including due to bankruptcy) are liable to that pension plan for an portion of their “unfunded vested benefits” (effectively, amounts that the business would have contributed if it had remained a participant in the plan). This adjusted “unfunded vested benefits” is a withdrawing employer’s “withdrawal liability1.”
In Yellow, the MEPPs collectively asserted billions of dollars in withdrawal liability claims arising from the Debtors’ entry into bankruptcy. These claims made the MEPPs by far the largest unsecured creditors of the Debtors, and, if allowed at the asserted amounts, would have resulted in more value flowing to the MEPPs than to others in the same class.
ERISA Discounting
Although the amount of unfunded vested benefits may initially seem quite substantial (and the payments may stretch for decades), ERISA includes multiple mechanisms for reducing an employer’s overall withdrawal liability.
Normalized Payments: Withdrawal liability payments are not made all at once, and are instead made annually, based on the highest average amount of contributions in the years preceding the withdrawal2.
Maximum Years: If an employer’s withdrawal liability, divided by its normalized payment amount, is high enough that it would require the employer to make more than 20 years of payments to satisfy, then ERISA caps the amount owed at 20 years and deems the remainder paid3.
Insolvency Reduction: The withdrawal liability of an insolvent employer can be further reduced by up to 50% (depending on the liquidation value of the employer, determined without regard to the withdrawal liability)4.
ERISA Discounting
Although the amount of unfunded vested benefits may initially seem quite substantial (and the payments may stretch for decades), ERISA includes multiple mechanisms for reducing an employer’s overall withdrawal liability.
Normalized Payments:
Withdrawal liability payments are not made all at once, and are instead made annually, based on the highest average amount of contributions in the years preceding the withdrawal2.
Maximum Years:
If an employer’s withdrawal liability, divided by its normalized payment amount, is high enough that it would require the employer to make more than 20 years of payments to satisfy, then ERISA caps the amount owed at 20 years and deems the remainder paid3.
Insolvency Reduction:
The withdrawal liability of an insolvent employer can be further reduced by up to 50% (depending on the liquidation value of the employer, determined without regard to the withdrawal liability)4.
Summary Judgment Motions and the Court’s Decision
Given the size of the MEPPs’ claims, the Debtors objected to allowance on numerous bases under both ERISA and the Bankruptcy Code, including on the grounds that the claims should be (1) capped at 20 years of payments, (2) reduced by the insolvency reduction provisions of ERISA, and (3) discounted to present value under either ERISA or the Bankruptcy Code. The MEPPs argued that (1) Yellow defaulted before the bankruptcy filing, meaning that the withdrawal liability should be considered accelerated prior to the petition date, resulting in a lump sum that was not subject to present-value discounting, and (2) that the insolvency reduction should be applied before the calculation of the 20 years of payments.
Following an initial decision that found that the MEPPs’ claims (where applicable) were subject to the 20-year cap, and after multiple rounds of summary judgment briefing, Judge Goldblatt issued an opinion on April 7, 2025 that addressed a handful of key discounting questions:
- whether the MEPPs’ claims were accelerated prior to or as a result of the Debtors’ bankruptcy filing;
- whether ERISA or the Bankruptcy Code controlled for purposes of present value discounting;
- what the appropriate discount rate should be under the Bankruptcy Code; and
- whether the ERISA insolvency reduction should be applied before or after the imposition of the 20-year cap5.
First, Judge Goldblatt held that the MEPP’s claims, as they had not been accelerated prior to the petition date (no valid default had been declared), should be characterized as claims for a stream of payments over 20 years. That stream of payments, Judge Goldblatt held, was nevertheless accelerated by means of the Debtors’ bankruptcy filing, which meant that present-value discounting was required6.
Second, the Court found that section 1405(e) of ERISA, although it could be read to impose a present-value discounting of withdrawal liability claims, has a primary function of ratably spreading applicable reductions across the various MEPPs. Crucially, the Court found that any discounting work performed by section 1405(e) of ERISA was subsumed by the discounting principles applicable under section 502(b)(2) of the Bankruptcy Code, which generally forbids the payment of unmatured interest7.
Third, after holding that the Bankruptcy Code, and not ERISA, controlled for purposes of discounting, Judge Goldblatt found that the appropriate method of discounting was to reduce the claim by the amount of implied interest8. In finding that section 502(b)(2) was the Bankruptcy Code’s method of present-valuing claims that have an actual or implied interest component, Judge Goldblatt determined that the purpose of bankruptcy law is to “treat creditors equally on account of their allowed claims,” and not to treat them equally “on account of their economic position outside of bankruptcy”9. The Court further found that discounting of unmatured interest was not confined to explicit contractual interest rates, but also to arrangements or claims for streams of payments that contain an “implicit” interest component10. Finding that the annualized withdrawal liability payments required by ERISA were such arrangements, the Court held that “interest that was added at the rate used in calculating minimum funding is unmatured interest and should be disallowed from the claim in bankruptcy”11.
Lastly, applying a strict construction of the language of ERISA, the Court found that the insolvency reduction (which is presented last in a series of adjustments to unfunded vested benefits for purposes of arriving at withdrawal liability), was properly applied after the 20-year cap12.
Third, after holding that the Bankruptcy Code, and not ERISA, controlled for purposes of discounting, Judge Goldblatt found that the appropriate method of discounting was to reduce the claim by the amount of implied interest8. In finding that section 502(b)(2) was the Bankruptcy Code’s method of present-valuing claims that have an actual or implied interest component, Judge Goldblatt determined that the purpose of bankruptcy law is to “treat creditors equally on account of their allowed claims,” and not to treat them equally “on account of their economic position outside of bankruptcy”9. The Court further found that discounting of unmatured interest was not confined to explicit contractual interest rates, but also to arrangements or claims for streams of payments that contain an “implicit” interest component10. Finding that the annualized withdrawal liability payments required by ERISA were such arrangements, the Court held that “interest that was added at the rate used in calculating minimum funding is unmatured interest and should be disallowed from the claim in bankruptcy”11.
Lastly, applying a strict construction of the language of ERISA, the Court found that the insolvency reduction (which is presented last in a series of adjustments to unfunded vested benefits for purposes of arriving at withdrawal liability), was properly applied after the 20-year cap12.
Consequences and Considerations
As a result of the Court’s summary judgment rulings, the MEPPs’ claims faced substantial reductions compared to their asserted values. A particular claim could be subjected to the 20-year cap, followed by a further reduction by up to half under ERISA’s insolvency provisions, followed by a third reduction that disallowed implied unmatured interest for the twenty year period. Both the Yellow case and the discounting issues raised by the parties remain hotly contested, with further battles left undetermined by the Court’s decision (including the correct method of calculating liquidation value for purposes of ERISA’s insolvency reduction).
As demonstrated by Yellow, careful navigation of a complex parallel statutory framework can, in the right circumstances, help Debtors to obtain large wins in claim valuation disputes. From the perspective of claims purchasers, the large size of the MEPPs’ asserted claims attracted substantial interest, and Yellow demonstrates the need for such prospective buyers to carefully evaluate the legal framework governing particular claims when considering whether to enter a potentially lucrative market.
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