Safe Harbor Nonelective Contributions

[12AX7]

On June 26, 2009, Company B purchases the assets of Company A and hires its employees. Company A ceases operations soon after. Company A sponsored a Safe Harbor plan and did not deposit the SH nonelective contributions for 2009. Company B tells me that the purchase agreement removes them from all liabilities of Company A's plan and that no nonelective contributions will be made for 2009. The Trustee of Company A's plan now works for Company B.

What implications if any are there for the Trustee of Company A's plan? This seems to now be an orphan plan. Does the requirement for the SH nonelective now go away? I appreciate any insights into this matter.

[Blinky the 3-eyed Fish]

The responsibility to make the contribution applies to the owner(s) of company A. The trustees aren't responsible for making the contribution. The requirement certainly doesn't go away. Being company A was purchased and not dissolved, it would seem as if they would have financial incentive to make the plan whole or suffer the problems that could come with not making the contribution both from a plan compliance standpoint and a litigation standpoint.

[12AX7]

Blinky, your points are well taken, however Company A was disolved after the asset sale. Is there a potential to litigate under these circumstances. I don't think Company B would have any possible liability, or would they?

[Blinky the 3-eyed Fish]

Yes, I did see you mentioned A ceased. I will let a lawyer add details... mbozek, this is your time to shine! But from a non-lawyer standpoint, I can't imagine simply dissolving the company means all legal ramifications cease. After all a company couldn't pollute the river with nuclear waste, dissolve and get away without any possible monetary damages.

I can't see why B would have issues here in an assets sale.

Lawyers chime in in 1 -- 2 -- 3 -- NOW.

[rcline46]

The details are in the purchase agreement in the section involving qualified plans.

[K2retire]

The details are in the purchase agreement in the section involving qualified plans.

If they exist anywhere. I've heard of many merger and acquisition situations where the attorneys for the small companies didn't think to include anything about qualified plans. (Or probably didn't realize there were any.)

[12AX7]

There was nothing specific to the plan in the purchase agreement. I was only told that in the agreement Company B would assume no liabilities for Company A, prior to the closing of the sale.

I'm trying to win Company B as a client, however they are uneasy discussing Company A's plan. As mentioned previously, the Trustee of Company A's plan works for Company B. If there's any risk for Company B, I would like them to know about it up front.

[Guest Sieve]

Obligations of A do not disappear due to a sale of assets just because the obligations did not pass to the purchaser. A still exists (it was a sale of asssets), and A's pre-sale obligations continue.

But, the Trustee has no obligation to make contributions. It is A's responsibility, and continues to be.

[J Simmons]

Federal common law of successor employer liability, developed in the field of the FSLA (minimum wage, overtime pay) are being applied by a few federal courts, primarily in the 7th Circuit.

The federal common law of successor employer liability does not depend on their being any commonality of stock ownership for the asset purchaser to be on the hook for what the seller was obligated but did not contribute to the ERISA plan. Other factors apply in the analysis, and very well could hook B for making the SH Non-Elective contributions you describe.

[rcline46]

Assuming you are correct in that the purchase agreement was silent there was definitely malpractice on the part of the attornies, IMHO.

You need to hope that the 'no liabilities' clause will hold up.

What happened to A's plan? If distributed and no receivable was on the 5500 (to prevent it from being a final) I hope for your sake that there are written directions to ignore the receivable. If the plan is not yet closed, then A must still be open to handle the wrap up of the plan.

If some participant complains to the DOL - watch out!

[12AX7]

Thanks everyone for the comments. I've more of less expressed these concerns to Company B. At this time, I don't know the fate of Company A's plan, but I do know that the 5500 was not put on extension for 2008, which is really a bad start to things. If Company B is soliciting quotes from other consultants, I have a feeling they will not bring up Company A's plan again.