414(c)

[jpod]

Two questions concerning joint and several liability for potential withdrawal liability.

1. Am I reading Title IV correctly to say that joint and several liability applies only to members of a 414© group? In other words, if you have two entities that are not members of a 414© group, but they are (or may be) members of an ASG under 414(m) (because one of the entities performs management functions for the other), there is no joint and several liability?

2. Assume owners of a corporation set up another brother-sister corporation to acquire a business in the same field, and that new business will be involved with a multiemployer plan. Assume further that in setting up the new corporation - and PRIOR to the acquisition of that new business - the owners bring in an unrelated person to be a very small shareholder (e.g., 1%) with the result that there is no 80% common ownership. Assume further that it can be proven in court that there is no other significant purpose to inviting this unrelated person to the party other than to break the 80% common ownership. Is there any case law suggesting that this could be attacked as an attempt to "evade or avoid" withdrawal liability under Section 4212© if down the road there is withdrawal liability and the contributing corporation is insolvent and can't satisfy that liability?

[Peter Gulia]

For withdrawal-liability purposes, courts have interpreted ERISA section 4201's (29 U.S.C. 1381) use of the word “employer” to extend far beyond the particular business organization that had an obligation to contribute to a plan. In addition to looking to common-control and affiliated-service-group concepts, courts interpret the word “employer” considering alter-ego, veil-piercing, fraudulent-transfer, and similar theories.

And as you already knew, ERISA’s withdrawal-liability part expressly provides: “If a principal purpose of any transaction is to evade or avoid liability under this part [ERISA §§ 4201-4225], this part shall be applied (and liability shall be determined and collected) without regard to such transaction.” ERISA § 4212©, 29 U.S.C. § 1392© (emphasis added).

Keep in mind that a business or other person asserted to be part of the employer has to fight the battle with some extra disabilities: ERISA/MPPAA's pay-first, dispute-later rule; arbitration before an arbitrator who's not required to explain his or her decision with a reasoned written opinion; and the reluctance of a Federal court to consider a case until after arbitration is exhausted.

That said, there are some opportunities for planning an acquisition to eliminate or reduce the risks. I don't want to discuss them in bulletin-board format, but jpod you're welcome to call me.