Failure to File Form 5500- Asset Sale

Hello,

We have a client who is purchasing the assets of a seller. In  the purchase agreement, the buyer (client) has specifically excluded the welfare plans so that the client will not be purchasing the welfare plans; however, there is a transition period under which employees will remain part of the seller's welfare plans before being transferred over to the buyer's plans. 

We have learned that the seller has failed to file a Form 5500 for its health plan for the past couple of years. Will our client (buyer) be at risk for DOL/IRS penalties if these delinquent Form 5500 are not corrected? I am having trouble finding sources to support whether successor liability will apply in this case. Any insight is appreciated. Thank you. 

Successor liability exists in theory (and often reality in the multiemployer plan context) but I have never seen it applied to a missing 5500 (or other "routine" violations in which participant assets are unaffected) in an asset transaction. The risk is very low in my opinion. Then again, filing a few late 5500s through DFVCP, either before closing or by a post-closing covenant, usually isn't overly challenging either. 

If the seller is continuing to employ the affected employees during the transition period, but the buyer is truly the common-law employer after closing (i.e., during the transition period), you may create an "accidental MEWA." That's its own risk analysis, although I have never encountered major problems in short-term transition periods like this. If the buyer is requesting the seller maintain coverage, the seller may want indemnity.