Multiple Employee Benefit Plans Recoveries for Unpaid Contributions are not Subject to a Single Cap in a Chapter 11 Case

Bridget Golden

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff


         In general, an employee benefit plan may assert a priority claim against a debtor in a bankruptcy case subject to a cap imposed by title 11 of the United States Code (the “Bankruptcy Code”).  According to the United States Court of Appeals for the Seventh Circuit in In re Algozine Masonry Restoration, Inc. (“Algozine”), the Bankruptcy Code’s cap applies to each employee benefit plan seeking unpaid contributions from an employer and is not a cap that limits that amount to be asserted by multiple plans.[1] In particular, according to the Seventh Circuit, (1) Bankruptcy Code section 507(a)(5) allows each employee benefit plan to file separate priority claims against a debtor employer,[2] and (2) Bankruptcy Code section 507(a)(5)’s aggregate limit on recovery is only tied to the total number of employees who worked during the 180-day period; the number of hours each employee worked is irrelevant to the calculation.[3]

         Algozine Masonry Restoration, Inc., is a construction company that was obligated under Bankruptcy Code section 507(a)(5) to contribute to each employee benefit fund. However, Algozine filed a petition for relief under Chapter 11 of the Bankruptcy Code because it fell behind on its contributions to the funds.[4] In the bankruptcy case, the Welfare Fund sought $65,658.83; the Pension Fund sought $56,057.90; and, the Annuity Fund sought $34,621.36, totaling $156,338.09.[5] Algozine objected to the claims arguing that the funds did not account for payments made within the 180-day period preceding the bankruptcy filing.[6] Consequently, the total value of the claims was reduced to $51,394.86, with each plan adjusting their claims accordingly: the Welfare Fund adjusted their claim to $21,334.30; the Pension Fund adjusted their claim to $18,453.40; and the Annuity fund adjusted their claim to  $11,607.16.[7] Algozine further argued that the aggregate claim amount should be reduced to $5,556.34 because the priority cap should apply to the funds’ aggregate claims, and not each separate fund’s claim.[8] The funds disagreed, and contended that they were each entitled to assert a priority claim, and that the priority limit should apply to each separate claim.[9] Both the bankruptcy court and the district court agreed with the funds, and held that each separate fund was entitled to submit their own priority claim.[10] Algozine appealed the decision to the Seventh Circuit.”[11]

         The Seventh Circuit affirmed the bankruptcy court and district courts’ decisions. Upon review of the plain language of section 507(a)(5) of the Bankruptcy Code’s, the Seventh Circuit held that the phrase “each such plan,” and the subtraction of the aggregate claims paid to any other employee benefit plans under the formula unequivocally allow for each individual fund to submit a separate proof of claim.[12] The court reasoned that the word “each” suggests multiple employee benefit plans can assert a priority claim.[13] Additionally, the formula calls for the amount paid to any other employee benefit plan to be added when calculating the priority cap, which implies permission for separate plans to file their own claims.[14] Then, the Court determined the priority cap for each fund using section 507(a)(5)(B)’s formula: “Priority cap = [(# of employees) x $12,850)] – [(amount of § 507(a)(4) claims) + (amount paid to any other employee benefit plan)].”[15] Algozine employees did not submit any priority claims under Bankruptcy Code section 504(a)(4), so the Court “disregarded that variable” when calculating each fund’s priority cap.[16] Therefore, the Court multiplied the number of Algozine employees by $12,850, and subtracted the amount paid to the other employee benefit plans from that product.[17] The court also held that the priority cap formula only requires the total number of employees who contribute to the funds; the hours each employee worked are irrelevant for purposes of calculating each fund’s priority cap.[18]

         According to the Seventh Circuit, section 507(a)(5) of the Bankruptcy Code allows multiple employee benefit plans to submit claims for contribution from a single employer in a single bankruptcy case, and that the statute’s priority limit will apply to “each such plan.”[19] Additionally, according to the Seventh Circuit, it is not necessary to consider the number of hours an employee worked when calculating a fund’s priority cap.[20]


[1] See In re Algozine Masonry Restoration, Inc., 2021 U.S. App. LEXIS 22080, at *3 (7th Cir. Jul. 26, 2021).

[2] See id. at *3.

[3] See id. at *4.

[4] Id. at *3.

[5] Id.

[6]  See id.

[7] Id.

[8] See id.

[9] See id at *3.

[10] See id.

[11] See id. at *3–4.

[12] See id.

[13] See id. at *5.

[14] See id.

[15] Id.

[16] Id.

[17] See id. at *5–6.

[18] See id. at *7.

[19] See id. at *6

[20] See id. at *7.