Liabililty for Spin Off Plan

[Just Me]

We have a multiple employer DB plan. One of the companies in the controlled group wants its own plan, so we are spinning that portion out to a new stand alone DB plan for that company.

Suppose a few years from now we sell that company and it is no longer part of the controlled group. Subsequent to that, the company has difficulty and ends up in a distress termination.

Can the PBGC come back to us as the prior parent if the new entity is no longer in the controlled group when it suffers the distress termination?

Thanks for your thoughts!

[Kirk Maldonado]

You need to read ERISA section 4069.

[Just Me]

OK. Those rules apply if the reason for the transaction is to evade liability. That is not the reason for this transaction. The employers are very different (one for profit, the other not) and have very different objectives with respect to providing retirement benefits, so they have agreed to split the plan into two plans so that each company can tailor its benefits to suit its own retirement plan needs. The plan is being fully funded just prior to the split so there will be no unfunded liability at that time.

The question becomes whether the original sponsor is liable in any way for a future unfunded liability in the spin off plan if the subsidiary that spun off is later sold out of the controlled group (when the spin off plan is still fully funded) and following that the plan incurs a distress termination. Seems from reading ERISA that the determination of the liable controlled group members is made as of the date of the distress termination, with no "look back."