| 85-20 |
| August 2, 1985 |
| REFERENCE: |
| 4204 Sale of Assets |
| 4204(a)(1) Sale of Assets. Conditions for Exemption from Withdrawal |
| 4204(a)(1)(B) Sale of Assets. Withdrawal - Posting of Security |
| 4204(a)(1)(C) Sale of Assets. Secondary Liability of Seller |
| 4204(a)(2) Sale of Assets. Subsequent Withdrawal by Purchaser |
| 4204(a)(3) Sale of Assets. Bond Requirement on Liquidation of Seller |
| 4204(a)(3)(A) Sale of Assets. Complete Liquidation of Seller |
| 4204(c) Sale of Assets. PBGC Grant of Variances or Exemptions from Bond Requi rements |
| 29 CFR 2643 Variances and Exemptions |
| OPINION: |
| This is in response to your letter in which you asked the opinion of the Pension Benefit Guaranty Corporation ("PBGC") |
| concerning Section 4204 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. § |
| 1384. More specifically, your question concerned the requirements for avoiding withdrawal liability under that section. |
| The facts, as you present them, are that an employer (the "Seller") obligated to contribute to a multiemployer pension plan |
| (the "Plan"), as defined by Section 4001(a)(3) of ERISA, 29 U.S.C. § 1301(a)(3), sold its assets to an unrelated entity (the |
| "Buyer") in an arm's-length transaction. You state that under the terms of the sales agreement (the "Agreement"): |
| "(1) The [Buyer] agreed to assume the Seller's obligation to contribute to the Plan. |
| "(2) The [Buyer] agreed, unless otherwise exempted, to provide to the Plan for a period of five plan years starting with the |
| first plan year after the sale of assets, a bond or escrow in an amount equal to the greater of (i) the average annual |
| contribution required to be made by the Seller to the Plan for the three plan years preceding the plan year in which the sale |
| of assets occurred, oir (ii) the annual contribution that the Seller was required to make to the Plan for the last plan year |
| before the plan year in which the sale of assets occurs. |
| "(3) The Seller agreed that if the [Buyer] completely or partially withdraws from the Plan during the five years beginning |
| after the sale, the Seller will be secondarily liable to the Plan if the [Buyer] fails to pay its withdrawal liability to the Plan. |
| "(4) Since the Seller was liquidated immediately after the sale, the [Buyer] agreed to provide to the Plan on behalf of the |
| Seller, at the [Buyer's] sole cost and expense, a bond or escrow in an amount equal to the present value of the withdrawal |
| liability the Seller would have had but for the special asset sale exemption in Section 4204 of ERISA." |
| You state that these provisions were drafted into the Agreement in order to satisfy Section 4204(a)(1) of ERISA, thereby |
| avoiding the imposition on the Seller of withdrawal liability resulting from the sale of the Seller's assets. |
| You further indicate that the Buyer qualifies under 29 C.F.R. § § 2643.11 and 2643.14 for the exemption from the |
| requirements set out in subparagraphs 4204(a)(1)(B) and (C) that the Buyer post a bond and that the sales agreement |
| impose secondary withdrawal liability on the Seller. Specifically, you state that the Buyer satisfies the "net tangible asset |
| test" set out in 29 C.F.R. § 2643.14. You ask whether the satisfaction of that test also exempts the now-liquidated Seller |
| from the requirement of posting a bond under Section 4204(a)(3)(A) of ERISA. |
| Section 4203 of ERISA provides, among other things, that complete withdrawal from a multiemployer pension plan occurs |
| when a contributing employer ceases to have an obligation to contribute to the plan. Section 4201(a) of ERISA provides |
| that upon complete withdrawal from such a plan, ordinarily an employer is liable to the plan for withdrawal liability. Section |
| 4204 of ERISA provides an exception to the general rule imposing withdrawal liability, in the case of a "bona fide, arm's- |
| length sale of assets to an unrelated party . . ." where certain conditions are met. Section 4204(a)(1) provides three |
| separate requirements which, briefly stated, are that: |
| 1. The buyer has an obligation to contribute substantially similar to that of the seller; |
| 2.The buyer posts a bond or escrow; and |
| 3. The sales contract provides for secondary liability of the seller to the plan if the buyer withdraws from the plan within |
| five years from the sale of assets. |
|
In addition, Section 4204(a)(2) of ERISA provides that, in any event, if the buyer withdraws from the Plan within five plan |
|
years, the seller will be liable to the plan for the withdrawal liability the seller would have owed but for Section 4204 if the |
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buyer fails to pay the withdrawal liability when due. Section 4204(a)(3)(A) provides that, upon liquidation or distribution of |
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the seller or the seller's assets within five years of the sale, the seller must post a bond equal to the present value of the |
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withdrawal liability that would have been imposed on the seller but for Section 4204. |
|
Section 4204(c) authorizes the PBGC by regulation to vary the requirements of Section 4204(a)(1)(B) [the buyer's bond |
|
requirement] and (C) [the requirement of a contract provision imposing secondary liability on the seller]. The PBGC has |
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done so at 29 C.F.R. Part 2643. One of the tests which has been set out for variance from the requirement oif Section |
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4204(a)(1)(B) and (C) is the net tangible asset test, 29 C.F.R. § 2643.14, which you state has been met in the present |
|
Thus, as you present the situation, the Buyer has met the requirements for waiver of the requirement of obtaining a |
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buyer's bond and of inserting a seller's secondary liability provision in the sales contract. You ask whether this waiver |
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also exempts the Seller from posting the liquidation bond required by Section 4204(a)(3). |
|
The PBGC has been granted specific statutory authority to waive the two requirements of a buyer's bond and of the |
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seller's contractual secondary liability. ERISA Section 4204(c). The PBGC has done so by regulation. 29 C.F.R. Part |
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2643. However, no such explicit statutory authority exists for the PBGC to waive either the seller's liability under Section |
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4204(a)(2) or the required seller's liquidation bond under Section 4204(a)(3). We note that the seller's liability under Section |
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4204(a)(2) is independent, although potentially overlapping, of the seller's contractual secondary liability under Section |
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4204(a)(1)(C), only the latter of which is explicitly waivable by the PBGC. Moreover, as the regulation and the preamble to |
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both the proposed and final versions of the regulation make clear, the exemptions provided in 29 C.F.R. Part 2643 apply |
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only to Section 4204(a)(1)(B) and (C), and not to any other portion of the statute. 48 Fed. Reg. 6555 (February 14, 1983) |
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and 49 Fed. Reg. 22635 (May 31, 1984). |
|
We, therefore, conclude that the exemptions established by satisfaction of one of the tests set out in 29 C.F.R. Part |
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2643, Subpart B do not exempt the Seller from the obligation of posting a liquidation bond under Section 4204(a)(3). The |
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decision whether to waive the obligation of the Seller to post a liquidation bond is one that must be made by the Plan. As |
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you are aware, Multiemployer Bulletin Number 2, published by the PBGC, provides guidance on the waiver of the seller's |
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liquidation bond by a plan. |
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In reaching this conclusion, we make no determination as to the correctness of your factual statements or conclusions. |
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The determination as to whether a withdrawal has occurred is to be made in the first instance by the plan sponsor, subject |
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to the statutory dispute resolution procedures. By this letter, the PBGC only seeks to provide general guidance on the |
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interpretation of Title IV of ERISA based on your statements, representations, and conclusions. |
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In your letter, you further request that, if the PBGC determines that the requirements of Section 4204(a)(3) are not waived |
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by satisfaction of one of the tests set out in 29 C.F.R. Part 2643, Subpart B, the PBGC approve a proposed Plan rule. |
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We point out that the adoption of a Plan rule is not a matter subject to approval by the PBGC. Consequently, we express |
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no opinion with respect to your proposed rule. |
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I hope this has been of assistance to you. If you have any further questions on this matter, please contact * * * of my |
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staff at the above address or at (202) 254-3010. |
|
Edward R. Mackiewicz |
|
General Counsel |