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M&A issue


ERISA25

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Assume following:

1. 100% asset sale

2. seller going out of business

3. buyer will assume CBA for purposes of employing seller's employees

Absent a 4204 agreement, the sale will result in complete withdrawal of seller from m/e plan (seller-side liability). In other words, even though buyer assuming CBA, it is not assuming contribution history of seller, and buyer's withdrawal liability will just be based on its own contribution history. Is this correct?

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Assume following:

1. 100% asset sale

2. seller going out of business

3. buyer will assume CBA for purposes of employing seller's employees

Absent a 4204 agreement, the sale will result in complete withdrawal of seller from m/e plan (seller-side liability). In other words, even though buyer assuming CBA, it is not assuming contribution history of seller, and buyer's withdrawal liability will just be based on its own contribution history. Is this correct?

Yes you are correct. 4204 has a number of other requirements that have to be met besides the buyer assuming the obligation to contribute to the plan. The buyers WL will be based only on its own contribution history.

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Assume following:

1. 100% asset sale

2. seller going out of business

3. buyer will assume CBA for purposes of employing seller's employees

Absent a 4204 agreement, the sale will result in complete withdrawal of seller from m/e plan (seller-side liability). In other words, even though buyer assuming CBA, it is not assuming contribution history of seller, and buyer's withdrawal liability will just be based on its own contribution history. Is this correct?

Yes you are correct. 4204 has a number of other requirements that have to be met besides the buyer assuming the obligation to contribute to the plan. The buyers WL will be based only on its own contribution history.

Thanks, Bill. One follow-up. Have you seen situations where an employer assumes the CBA and then negotiates out of the obligation to contribute only a few months after the asset sale. In that case, the new company would have only a few months of contribution history and I suppose its withdrawal liability would be dependent on the plan's method of calculating liability (as provided in the plan document). Presumably, the liability would be small with such a short history. Have you seen similar situations?

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Assume following:

1. 100% asset sale

2. seller going out of business

3. buyer will assume CBA for purposes of employing seller's employees

Absent a 4204 agreement, the sale will result in complete withdrawal of seller from m/e plan (seller-side liability). In other words, even though buyer assuming CBA, it is not assuming contribution history of seller, and buyer's withdrawal liability will just be based on its own contribution history. Is this correct?

Yes you are correct. 4204 has a number of other requirements that have to be met besides the buyer assuming the obligation to contribute to the plan. The buyers WL will be based only on its own contribution history.

Thanks, Bill. One follow-up. Have you seen situations where an employer assumes the CBA and then negotiates out of the obligation to contribute only a few months after the asset sale. In that case, the new company would have only a few months of contribution history and I suppose its withdrawal liability would be dependent on the plan's method of calculating liability (as provided in the plan document). Presumably, the liability would be small with such a short history. Have you seen similar situations?

The buyers liability is calculated only on its own contribution history (absent a 4204 agreement). With only a brief contribution history, its liability would most likely be zero. Many plans also have a five year "free look rule", which means that if the buyer withdraws within five years from joining the plan, there would be no withdrawal liability.

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Just a follow up thought - A pension fund may argue that the buyer of the assets is a "successor employer" making it liable for any unpaid withdrawal liability of the seller, even though the buyer's own withdrawal liability amount is based on its own contribution history.

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