Spinoff to be purchased. What happens to Pension Plan?

[Guest Scrofani]

Company A is spinning off a division that will be bought by Company B. Employees of Company A (and the Spinoff) have a pension plan with vesting, Company B does not.

Who controls what happens to the employee's pension plan, Company A or B? What options can Company B take to deal with the new pension and liabilities? Will vesting transfer over? If the answer for all these questions is "depends", please let me know what the most common industry solution is.

Thanks,

Phil

[david rigby]

It depends. Some things to consider, assuming this plan is covered by ERISA:

- The sale/spinoff might create a "partial termination", the consequence of which would be to give 100% vesting to those affected.

- Even if that does not happen, the seller might choose to give 100% vesting. Just takes a simple plan amendment. If not, then the affected employees will probably be considered to have severed employment at the date of sale, and their accrued benefit and vesting will be determined as of that date.

- An alternative is to establish a new plan (that is, spinoff a new plan by itself) with only the affected employees. Then upon sale of the “new division”, the plan goes with it. This is usually not recommended because the buyer gets the benefit of non-vested forfeitures.

- Another variation is for the buyer and seller to negotiate a transfer of liabilities (and assets) directly from seller’s plan to buyer’s plan.

BTW, this assumes the buyer is outside the controlled group of the seller.

[Kirk Maldonado]

The answer should depend on the spinoff agreement. A well-drafted agreement should expressly address this issue.