Unfunded Plans - Asset Sale

[52626]

A company offers a DB plan with that currently has an unfunded liability. The company may be sold - asset sale only to an unrelated party. There is no controlled group issue or any relationship between the potential buyer and seller.

I am told that even though this is an asset only sale, the new buyer would have to take on the unfunded liability.

Is this correct? Why would the new owner have to take on this expense??

thanks

[Andy the Actuary]

What is meant by unfunded liability?

[52626]

What is meant by unfunded liability?

I am assuming the assets are not sufficient to cover the benefits

[Lou S.]

Is it a collectively bargained plan?

Is it covered by the PBGC?

[52626]

Is it a collectively bargained plan?

Is it covered by the PBGC?

covered by PBGC - not sure if it is a union plan

[Effen]

In general, the buyer would not assume the pension plan's liabilities or assets. Asset sale is just an asset sale - bricks and mortar. The original corporation still exists and still maintains control of the plan.

All that said, if the plan is underfunded and covered by the PBGC, the PBGC will not let the seller escape the liability just because they sold the company. This is a reportable event and they could block the sale and/or go after the proceeds to fund the plan, if needed.

Also, there are other considerations if the plan is collectively bargained.

[52626]

I have been informed the plan is terminated and with the PBGC. Since this is an asset sale only, doesn't the prior own have the responsibly for this filing and any additional costs associated with it?

It maybe my client can not purchase the assets until the PBGC filing is done and the benefits are paid.

Can not figure out why my client would be responsible since he only purchased the assets, unless, the current owner has no money and the PBGC figures they will go after the new owner.

[Effen]

It maybe in the process of terminating with the PBGC, but it sounds like it isn't "terminated". It isn't terminated, until all of the assets have been distributed.

Sounds like you, or your client, has some bad information. I agree, buyer should have no responsibility, but I haven't read the sale agreement.

[david rigby]

Effen is (as usual) correct. Think of it this way: the responsibility for any plan starts (and often ends) with the plan sponsor.

Caution: the buyer's legal counsel should probalby review the buy-sell agreement(s) to make sure the buyer did not inadvertently "acquire" some portion of the plan liability.