Stock Sale vs. Asset Sale

[Guest HarveyC]

Where can I find info on how qualified retirement plans are treated under a stock sale vs. a an asset sale?

[mbozek]

The American Bar Asociation publishes a CLE course book on Employee Benefits in Mergers and Acquistions. But there are few rules on the effect of an asset sale on employee benefits because the plans are not usually assumed by the buyer. Benefit issues are handled on a deal by deal basis without any uniformity. You need to contact benefits counsel who have negotiated benefit issues in asset sales. In a stock sale the buyer becomes the plan sponsor and assumes all liabilities of the plan, eg. underfunding in a DB plan or the risk of noncompliance with applicable laws.

[E as in ERISA]

The issues are generally easier for retirement plans than for welfare benefit plans. In an asset sale, the seller continues in existence as a separate legal entity that can maintain the plan. So the plan doesn't automatically transfer to the buyer. In a stock sale, the company and the plan move together.

But be careful about new forms of transactions. A sale can be effected through a the sale of the LLC interest, and this may be called an "asset sale" for tax purposes if the LLC was a disregarded entity. For retirement plan purposes, you generally treat an entity the same way it is being treated for other tax purposes. But in this case you might need to look at it from a legal standpoint. If the LLC was the sponsor of the plan, then the LLC and the plan may move together.... I don't believe that the IRS has not clarified this issue.

[mbozek]

Sale of a subsidiary may also be described as as an asset sale even though all of the stock of the sub is being sold. For benefits purposes this transaction is still a stock sale.

[Kirk Maldonado]

You need to retain competent ERISA counsel.