Asset sale and successor liability issues

[Guest cosmo01]

We are looking to purchase the assets of a company that maintains an underfunded DB plan. It is our intention to not assume the plan because we do not want to be responsible for funding the underfunded DB plan. It is not a multiemployer plan. Is there any potential successor liability on our part if we definitely state in the asset purchase agreement that we are not assuming the DB plan? Any insite will be appreciated!

thanks

[E as in ERISA]

I've noticed that a lot of "asset sales" for tax purpose are actually the sale of an LLC interest. E.g., in some cases, the seller creates a new holding company. Then it converts the operating company with the assets into an LLC -- and checks the box to make it a "disregarded entity" (treated as a division) for corporate tax purposes. It then sells the interest in the LLC. But the tax people treat it as an "asset sale" since it was a "disregarded entity." You're normally supposed to treat the entity the same for all tax purposes. So one would assume we could apply the "asset sale" rules for benefit plan purposes (i.e., the plan and related liabilities would not transfer to the buyer). But what if the operating company was the party that signed the adoption agreement as sponsor? Can you really say that the sponsorship doesn't transfer to the buyer when it purchases the LLC? I don't think that this question has been answered. I advise that one take some of the precautions that you would in a stock sale -- i.e., make sure the sponsorship is legally transferred to the holding company prior to the time of the transaction. Make sure that there is no legal relationship that would carry the liability over.

[mbozek]

Asset sales by employers who sponsor DB plans subject to ERISA are subject to certain liability provisons under Title IV of ERISA. Counsel should be retained to determine what the issues are.

[Kirk Maldonado]

The amount of the withdrawal liability can be astronomical. I worked on a case at least ten years ago where the multiemployer plan assessed withdrawal liability in an amount in excess of $50,000,000 as a result of a sale of assets transaction.

You should heed MBozek's advice about getting competent ERISA counsel.

[IRC401]

Kirk-

Was the withdrawal liability assessed against the buyer or seller? If it was assessed against the seller, that doesn't surprize me. If it was assessed against the buyer, what was the basis for the assessment?

[Kirk Maldonado]

Seller.

[Mike Preston]

The OP's situation was specifically NOT a multiemployer plan.

[Kirk Maldonado]

Oops.