In Supplee v. Bethlehem Steel Corp (In re Bethlehem Steel Corp.), 479 F.3d 167 (2d Cir. 2007), the Second Circuit Court of Appeals addressed the issue of whether early retirement benefits triggered by severance are entitled to administrative expense treatment. The court held that that early retirement benefits are not entitled to severance priority. While the Second Circuit generally treats severance payments as priority administrative expenses when employment is terminated during the employer’s bankruptcy, Bethlehem determined that lump-sum retirement benefits for which the employee became eligible at termination did not constitute a new benefit earned at termination, and was thus not entitled to administrative priority. In re Bethlehem Steel Corp., 479 F.3d at 171–175.
Section I of this will provide a general overview of administrative expense treatment under the Bankruptcy Code. Section II discusses a circuit split on the issue of whether severance payments qualify for administrative expense treatment, with particular focus on the Second Circuit’s approach. Section III analyzes the Second Circuit’s decision in Supplee to exclude lump-sum retirement payments as an administrative expense, and Section IV will briefly discuss the impact of the Supplee.