Creation of Joint Venture

[Brian Haynes]

I have a publicly traded client that wants to contribute certain operating assets to a new joint venture (an LLC) in return for a 20% equity interest. These operating assets are subject to an obligation to contribute to a multiemployer pension fund. The other 80% member will be a private unrelated non-union company that will contribute assets for an 80% equity interest. The new joint venture will assume the obligation to continue making contributions to the pension fund at issue. Under Section 4218 of ERISA, a change in corporate structure does not trigger withdrawal liability (this exception covers a merger, consolidation or division of an employer). The Second Circuit in Bowers (27 F.3d 800) in 1994 held that two companies that formed a separate joint venture and transferred to it their unincorporated operations were subject to withdrawal liaiblity since there was no division or merger. Citing several PBGC Opinions, the Court viewed a division as requiring some kind of stock transaction where stock is divided away from a control group and acquired by a new owner. The asset transfer and contribution to the joint venture for an equity position thus did not qualify as a division exempt from liability. The Court also held that such a transaction was not a merger or consolidation. Any ideas on how my client can form a joint venture without triggering withdrawal liability? Since my client is publicly traded, I do not believe that the joint venture can be considered part of its control group (and thus exempt) even if it owns more than 50% of the new venture. Any thoughts are appreciated.

[jpod]

Why not have your client stay on as an obligor (co-obligor?) under the CBA? How about the 4204 sale of assets exception? If your client is attempting to avoid W/L but at the same time avoid all future obligations to the plan(s), that doesn't strike me as something which could/should fit under the construct of Title IV's W/L rules.

[Brian Haynes]

Thanks for your comments. I am not sure a pension fund would consider the contribution of assets to a new entity in which the transferor has retained an interest as a sale of assets under Section 4204. If anyone feels different please let me know your thoughts. The complete line of union business would be contributed to the new joint venture so the transferor would not be able to make or retain any obligation to contribute to the pension fund. There is no attempt to avoid withdrawal liability just economic reasons to enter into a new joint venture with an unrelated party.

[jpod]

It may be possible to remain a co-obligor in some fashion, perhaps as "joint employers," in effect creating joint and several liability for the on-going contributions and any future w/l, while at the same time avoiding a w/l by virtue of the transfer of the employees. I think your client should investigate that.