Stock purchase vs. asset purchase

[billfgrady]

What is the general rule with respect to the effect on retirement plans in an acquisition setting? My understanding is that, with a stock purchase, the retirement plan of the acquired company is included in the deal (unless the purchase documents indicate otherwise). On the other hand, in an asset purchase, the purchasing company would not be responsible for the acquired company's retirement plan unless the retirement plan was among the assets purchased. Correct?

[Alf]

Generally, that is correct, although I wouldn't label a QP trust as an asset. However, the problems come in determining HCEs, running coverage and nondiscrimination tests, and integrating benefits, to name a few, after an acquisition and it appears that the form of the deal (asset vs. stock) could have a substantive effect on these issues.

[g8r]

The nature of the transaction could affect the resolution of the issues that come up with testing, etc.

Of course the question raised goes to the heart of this -- who is responsible for dealing with those ugly issues?

With a stock sale, the purchaser continues the business and is responsible for the plan. With an asset sale, it depends on the agreement. Typically the seller is responsible for the plan, but in many cases the purchaser will assume the plan.

[RCK]

I think that each of the observations here is generally on point. I would however strongly suggest looking at the purchase agreement for confirmation. We have had situations that fly against those general rules. That is, we had a stock acquisition where the seller did an eve of closing termination of the plan, and agreed to wrap up the plan--so we did not get it. On the other hand, we have done asset purchases where we also agreed to pick up the plan.

RCK

[mbozek]

In some acqusitions, the sale of all the stock of a subsidary is considered to be an an asset purchase by corporate lawyers even though 100% of the stock and any retirement plans sponsored by the sub are transferred to the buyer because the stock is considered to be an asset of the parent corp.