Multiemployer Withdrawal Liability

[mal]

Consider this factual scenario for a CONSTRUCTION industry

defined benefit plan.

Company A has two divisions (electrical and mechanical). They contribute

to a separate plans for this work. The electrical plan has significant withdrawal liability. Company A decides to sell their business to an unrelated buyer. Immediately after buying the company, buyer closes the electrical division.

Questions...

Does WL attach to the seller at the point of sale? They did not request a waiver or post the necessary bond.

Would the closure of the electrical division affect the answer? Under 4203 of ERISA, a construction industry employer may close his business without incurring WL so long as he doesn't reopen (non union) in 5 years. Therefore, absent the sale, the buyer would seem to be off the hook

Input is appreciated.

[Effen]

When you say "electrical" do you mean these are electricians out working with the tools or are they a company who manufactures electrical components where the employees are represented by an electricians union? If it’s the second, I'm not sure you would meet the exemption as a "construction trade employer" since the employer isn't really in the construction trade. I think the exemption may apply to the "employer", not all employers of the "plan".

I know we have a non-construction employer who is a contributing employer in a construction trade plan. The attorneys for this employer wanted the trustees of the plan to sign an agreement that they would treat this employer "like a construction trade employer" for the purposes of the withdrawal liability. It may not have any value, but they (the non-construction employer) figured it wouldn't hurt.

Are you saying that the sale didn't mention the potential withdrawal liability? You may want to look at ERISA Section 4204, SALE OF ASSETS.

[mal]

This is an electrical contractor, not a manufacturer.

[Bill Ecklund]

For an employer in the building and construction industry who contributes to a building and construction industry plan, the only thing that triggers withdrawal liability is continuing in business, but not contributing to the plan (i.e. going non-union, or negotiating the plan out of the CBA). His sale didn't constitute a withdrawal and the shut down by the new owner did not consititute a withdrawal.

There is no need to utilize 4204. In fact that could create a problem for the new employer if it actually did withdraw later, because his withdrawal liability would be higher based upon his assumption the contribution history of the seller.

The agreement referred to by EFFEN probably wouldn't work unless the trustees adopted a definition of "building and construction industry" which included this employer. The PBGC struggled with developing regulations defining the building and construction industry in the early 80's, but never came out with anything. They got hung up with how to treat contractors who fabricate in their shop and then install in the field. They were going to use an 85% test (to define the "substantially all" requirement of 4202(b)(1)(A)), but would not include the shop fabrication work as part of the 85%. In the absence of regulations, plans are free to adopt their own definition of "the building and construction industry", provided it is reasonable.

[mal]

We came across a PBGC Opinion letter from 1981 which indicated

just what you wrote: No liability at the point of sale unless the company

resumes covered employment in the jurisdiction of the local union

in 5 years.