92-1

March 30, 1992

REFERENCE:

>4001(b)(1)>

4203 Complete Withdrawal

4204 Sale of Assets

4204(a)(1)  Sale of Assets.  Conditions for Exemption from Withdrawal

4205 Partial Withdrawals

>4205(b)(1)>

4206 Adjustment for Partial Withdrawal

4211 Withdrawal Liability

4212(c) Obligation to Contribute - Liability

4218 Withdrawal - No occurrence

OPINION:

I write in response to your letter requesting the opinion of the Pension Benefit Guaranty Corporation ("PBGC") in regard to

calculating liability for a complete or partial withdrawal under Sections 4203 and 4205 of the Employee Retirement Income

Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. § § 1383 and 1385 (1989). Specifically, your question concerns

the calculation of withdrawal liability in a situation where several members of a controlled group of corporations have an

obligation to contribute to the same rultierployer pension plan and the controlled group members are sold or liquidated in a

series of transactions.

As you are aware, Section 4221 of ERISA provides that disputes between a plan sponsor and an employer on issues

concerning withdrawal and withdrawal liability are to be resolved first through arbitration, and, if necessary, in the courts.

The PBGC does not interject itself into these statutory procedures by issuing opinions on the application of the law to

particular transactions. However, the PBGC will continue its practice of answering general questions of interpretation under

Title IV of ERISA.

In the hypothetical situation you present in your letter, parent company P has four wholly-owned subsidiaries, A, B, C and

D. The four subsidiaries contribute to a multiemployer pension plan (the "plan") in equal periodic amounts under a single

collective bargaining agreement.

In a series of transactions, P's controlled group ceases covered operations at each of the subsidiaries. First, P closes

subsidiary A and does not continue operations previously performed by A. Second, P sells the assets of subsidiary B to

an unrelated purchaser. The purchaser does not assume B's contribution obligation or make contributions to the Plan.

Third, P sells the stock of subsidiary C to another unrelated purchaser. C continues in business and makes required

contributions to the plan. Finally, P sells the stock of subsidiary D to a third unrelated purchaser. D continues operations

and contributes to the plan for several years before going out of business. You request the PBGC's opinion as to the

assessment of liability for a complete or partial withdrawal stemming from this series of transactions.

For purposes of determining whether a complete or partial withdrawal has occurred, all trades or businesses under common

control are to be treated as a single employer. ERISA § 4001(b)(1), 29 U.S.C. § 1301(b)(1). Under Section 4203(a) of

ERISA, 29 U.S.C. § 1383(a), a complete withdrawal generally occurs when an employer permanently ceases to have an

obligation to contribute under a plan, or permanently ceases all covered operations under a plan. A partial withdrawal

generally occurs when an employer has a 70% contribution decline in each of three consecutive plan years; or, the

employer permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining

agreements, but continues to perform work in the jurisdiction of the collective bargaining agreement of the type for which

contributions were previously required, or transfers such work; or, the employer permanently ceases to have an obligation

to contribute with respect to work performed at one or more but fewer than all of its facilities, while continuing to perform

work at that facility of the type for which the obligation to contribute ceased. ERISA § 4205(a) and (b), 29 U.S.C. §

1385(a) and (b). The methods for computing the amount of liability for a complete or partial withdrawal are set forth in

Sections 4211 and 4206 of ERISA, 29 U.S.C. § § 1391 and 1386. In order to determine whether a complete or partial

withdrawal has occurred and the amount of the resulting liability, contributions of the entire controlled group must be taken

into account. 29 U.S.C. § § 1301(b)(1) and 1391.

As you point out in your letter, when subsidiary A is closed in the first transaction, there is no complete or partial

withdrawal by the controlled group. Three members of the controlled group continue to have an obligation to contribute to

the plan and continue covered operations. There is no partial withdrawal because, on the facts assumed, there has not

been a 70% decline in contributions by the controlled group over a three-year period or a partial cessation of the controlled

group's contribution obligation within the meaning of Section 4205(b)(2)(A) of ERISA, 29 U.S.C. § 1385(b)(2)(A). Thus, for

purposes of calculating the amount of liability for a subsequent complete or partial withdrawal under Sections 4211 and

4206 of ERISA, 29 U.S.C. § § 1391 and 1386, A's contribution history remains part of the controlled group's contribution

The same holds true on the sale of B's assets to an unrelated purchaser. Even though the asset sale is not structured to

meet the requirements of Section 4204 of ERISA, 29 U.S.C. § 1384, there is no complete or partial withdrawal because

two other members of the controlled group continue to contribute to the Plan and there has been no 70% decline in

contributions over three years or any partial cessation of the controlled group's contribution obligation under 29 U.S.C. §

1385(b)(2)(A). Again, the contribution history of B remains part of the controlled group's contribution history for purposes

of calculating amounts of subsequent withdrawal liability.

The sale of the stock of subsidiary C to an unrelated purchaser that continues to make contributions to the plan would

ordinarily fall within the ambit of Section 4218 of ERISA, which provides in relevant part:

Notwithstanding any other provision of this part, an employer shall not be considered to have withdrawn from a plan solely

because --

(1) an employer ceases to exist by reason of --

(a) a change in corporate structure described in Section 4069(b) . . .

if the change causes no interruption in employer contributions or obligations to contribute under the plan . . . .

* * *

[A] successor or parent corporation or other entity resulting from any such change shall be considered the original

29 U.S.C. § 1398.

Among the changes described in Section 4069(b) of ERISA, 29 U.S.C. § 1369(b), are "a mere change in identity, form, or

place of organization" and "a merger, consolidation or division." In Opinion Letters 82-4 (February 10, 1982), 83-11 (May 16,

1983), and 84-7 (December 20, 1984), the PBGC expressed its opinion that the sale of a subsidiary's stock does not bring

about the withdrawal of the parent corporation, if the change causes no interruption in employer contributions or obligations

to contribute under the plan.

Under the last sentence of Section 4218 of ERISA, a successor employer resulting from a restructuring described in that

Section is considered the "original employer." This provision attributes the contribution history of the original employer to

the successor employer resulting from the restructuring. In the typical case, the contribution history used to determine the

withdrawal liability of the successor will be the contribution history that would have formed the basis for withdrawal liability

if the restructuring had not occurred.

In your hypothetical, the sale of C's stock causes no interruption in contributions or obligations to the plan. C and its new

controlled group, if any, and the P controlled group, continue to contribute to the Plan. Consequently, there is no complete

withdrawal by the P controlled group, or by C and its new controlled group, if any. Pursuant to the last sentence of

Section 4218, both the P controlled group and C and its new controlled group, if any, are "successor" employers.

However, in a situation such as this where multiple entities in the same controlled group contribute to the same plan, and

some, but not all, of the controlled group members who contribute to the plan are the subject of a change described by

Section 4218 of ERISA, neither of the successors clearly should inherit the entire contribution history of the original

employer. In such a case, it is the PBGC's opinion that the contribution history of the original employer must be fully

apportioned among the successor employers. The plan should make the allocation in a reasonable manner. For example,

in the absence of a history of large transfers of operations or covered employees between members of the controlled

group, or other unusual factors, the plan may allocate that contribution history in proportion to the contribution histories of

the controlled group members that have an obligation to contribute and covered operations immediately before the Section

4218 transaction, or in your hypothetical 50% to C and 50% to the P controlled group.

Consequently, in the event of a subsequent complete withdrawal by the P controlled group, the amount of liability under

Section 4211 of ERISA, 29 U.S.C. § 1391, is determined without reference to the contribution history allocable to C and

its new controlled group, if any. Likewise, in the event of a subsequent complete withdrawal by C and its new controlled

group, if any, the amount of liability under Section 4211 of ERISA, 29 U.S.C. § 1391, is determined without reference to

the contribution history allocable to the P controlled group.

You also inquired as to the effect of the sale of C's stock on determining whether a partial withdrawal occurs under Section

4205(a)(1) of ERISA, 29 U.S.C. § 1385(a)(1). Under your hypothetical, once C is sold, the contributions of the P

controlled group decline by 75%. Generally, a partial withdrawal occurs whenever there is a 70% contribution decline in

each of three consecutive plan years measured against a base year. See 29 U.S.C. 1385(b)(1). Under Section 4218 of

ERISA, P's controlled group would not ordinarily incur a partial withdrawal in the third plan year following the sale of C's

stock. However, in order to avoid partial withdrawal liability, the decline in contributions must be "solely" because of a

covered change in corporate structure. 29 U.S.C. § 1398.

In your hypothetical, it is not clear whether the decline in contributions is solely because of the sale of C's stock. The

decline could be due, at least in part, to closing A and selling the assets of B to a purchaser who did not continue making

contributions to the Plan. Whether a decline in contributions is solely because of a covered restructuring must be

determined on the facts and circumstances of each case and should be addressed by arbitration subject to review by the

courts. Relevant considerations might include the length of time between transactions, whether the transactions were

related, and whether each transaction would have been subject to Section 4218 if viewed individually.

If the decline in contributions is determined to be solely because of the sale of C's stock, the contribution history

transferred in the Section 4218 transaction is excluded from the base year calculations used to determine whether a 70%

decline has occurred under Section 4205(b)(1)(B)(ii) of ERISA. If the decline in contributions is determined not to be solely

because of the sale of C's stock, C's contribution history is included in the base year calculations.

In the final transactions D's stock is sold to a third unrelated purchaser who continues making contributions to the Plan on

behalf of D's employees. After the stock sale, the P controlled group ceased covered operations and no longer has an

obligation to contribute to the Plan. Under Section 4218 of ERISA, the P controlled group would not ordinarily be subject to

withdrawal liability on the sale of D's stock. As stated above, however, in order to avoid withdrawal liability, the controlled

group must cease to have such operations or such obligations "solely" because of a covered change in corporate

structure. 29 U.S.C. § 1398. As discussed above, whether an employer's cessation is solely the result of a covered

restructuring must be determined on the facts and circumstances of each case and should be addressed by arbitration

subject to review by the courts.

Assuming that the controlled group's cessation is not solely because of a covered restructuring, it incurs a complete

withdrawal. However, D and its new controlled group, if any, would be a "successor" within the meaning of the last

sentence of Section 4218. Consequently, a portion of the P controlled group's remaining contribution history must be

allocated to D and its new controlled group, if any, under the principles discussed above. The P controlled group's liability

is then determined pursuant to Section 4211 of ERISA, 29 U.S.C. § 1391, based on the contribution history of the original

employer that was not transferred to C or D. C and its new controlled group, if any, remains responsible for the

contribution history previously allocated to C.

Alternatively, if the controlled group's cessation is determined to be solely because of a covered restructuring, the

controlled group is not subject to withdrawal liability even though it no longer has an obligation to contribute to the Plan or

has covered operations under the Plan. In that event, D and its new controlled group, if any, inherits the contribution

history of the P controlled group that was not allocated to C.

You also ask if the result would be different if the assets of D are sold in a transaction that meets the requirements of

Section 4204 of ERISA, 29 U.S.C. § 1384. Under Section 4204(a)(1) of ERISA, an employer will not incur liability for a

complete or partial withdrawal "solely" because of the sale of all or a portion of its assets to an unrelated purchaser if the

following conditions are met. First, the purchaser must have an obligation to contribute to the pension plan for

substantially the same number of contribution base units as the seller. Second, the purchaser must provide a cash or

surety bond payable to the pension plan in the five years after the sale if the purchaser withdraws or fails to make

required contributions. Third, the contract for sale must provide that if the purchaser withdraws in the five years after the

sale and fails to pay its withdrawal liability, the seller is secondarily liable. 29 U.S.C. § 1384(a)(1).

Under Section 4204(b)(1) of ERISA, 29 U.S.C. § 1384(b)(1), the liability of the purchaser for a subsequent complete or

partial withdrawal is determined as if the purchaser was required to contribute to the plan the amount the seller was required

to contribute for the operations transferred for the year of the sale and the four previous years. Thus, the purchaser

assumes the contribution history of the seller for the year of the sale and the four plan years preceding the sale, but only

for the contribution history relating to the assets transferred in the sale.

In your hypothetical, if the assets of D are sold in a sale that meets the requirements of Section 4204 of ERISA, the P

controlled group has ceased covered operations and no longer has an obligation to contribute to the Plan. Like the sale of

stock situation discussed above, the P controlled group would not ordinarily be subject to withdrawal liability on the sale of

D's assets. However, under Section 4204(a)(1), as under Section 4218, in order to avoid withdrawal liability, the controlled

group's cessation must occur "solely" because of a sale of assets. Again, the question of whether an employer's

cessation is solely because of a particular transaction must be determined on the facts and circumstances of each case

and should be addressed by arbitration subject to review by the courts.

Assuming that the controlled group's cessation is solely because of the asset sale, the controlled group does not incur

withdrawal liability even though it no longer has an obligation to contribute to the Plan or has covered operations under the

Plan. However, the controlled group is secondarily liable if D and its new controlled group, if any, withdraw from the Plan

within 5 years of the asset sale and fail to make withdrawal liability payments. D and its new controlled group, if any,

assume the contribution history relating to D's operations for the year of the sale and the previous four years.

If the controlled group's cessation is determined not to be solely because of the sale of D's assets, it incurs a complete

withdrawal and its liability is determined pursuant to Section 4211 of ERISA, 29 U.S.C. § 1391, based on the contribution

history of the original employer that was not transferred to C.

As a final matter, the opinions in this letter are subject to the special rule in Section 4212(c) of ERISA, which states:

If a principal purpose of any transaction is to evade or avoid liability under this part, this part shall be applied (and liability

determined and collected) without regard to such transaction.

29 U.S.C. § 1392(c). Depending on the facts, some of the same considerations as are relevant in determining whether a

cessation is due "solely" to a restructuring or sale of assets may be relevant under Section 4212(c).

I hope this has been of assistance to you. If you have any further questions, please call D. Bruce Campbell of my staff

at (202) 778-1918.

Carol Connor Flowe

General Counsel