Underfunded multiemployer pension plans assess “withdrawal liability” to a contributing employer if the employer ceases to contribute to the plan either wholly (a “complete withdrawal”) or where there is a 70 percent or more reduction in contributions (a “partial withdrawal”). When an employer sells all the assets of a business that had been contributing to a multiemployer plan, the contributing employer will cease its plan contributions, resulting in a withdrawal from the plan. However, a special statutory rule in ERISA Section 4204 allows an employer who has ceased contribution to a multiemployer plan as a result of a sale of assets to avoid the imposition of withdrawal liability if (1) the buyer of the assets has an obligation to contribute to the plan at the same rate the seller had before the sale, and (2) the buyer posts a bond with the plan to cover an amount of up to three plan years’ of average contributions. The bond must remain in place for five years after the sale and must be payable to the plan if the buyer withdraws from making plan contributions or fails to make its required plan contributions at any time during those five years. The seller of assets remains secondarily liable for withdrawal liability if the buyer withdraws during these five years and does not pay its assessment of withdrawal liability, if any. The asset sale exception to withdrawal liability is available only where a cessation of plan contributions occurred “solely because” of the asset sale. In one of the rare instances where a court has ruled on the “solely because” rule as applied to the use of the asset sale exception to withdrawal liability, the U.S. Court of Appeals for the Seventh Circuit upheld an arbitrator’s ruling that an asset sale qualified for the exception from payment of withdrawal liability even though earlier actions taken by the contributing employer resulted in reduced plan contributions as a result of plant closures and layoffs. The court determined that the statutory exception would not apply where an employer had deliberately set out to withdraw from a plan in stages and attempted to use the asset sale exception only for the last stage. In this case, however, there was no evidence that plant closings and layoffs in the 1990s were part of an integral plan to withdraw from a multiemployer plan with an asset sale in 2004 that was designed to avoid payment of withdrawal liability. (Central States, Southeast and Southwest Areas Pension Fund v. Georgia-Pacific LLC, 7th Cir. 2011)
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Asset sale exception to multiemployer withdrawal liability upheld
- Hodgson Russ LLP
- Peter K. Bradley, Anita Costello Greer, Michael J. Flanagan, Richard W. Kaiser, Arthur A. Marrapese III and Daniel R. Sharpe
- May 20 2011
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