| | 81-32 |
| | September 25, 1981 |
| | REFERENCE: |
| | 4204 Sale of Assets |
| | 4204(a)(1)(B) Sale of Assets. Withdrawal - Posting of Security |
| | OPINION: |
| | This responds to your request for an advisory opinion concerning satisification of the escrow requirement of Section |
| | 4204(a)(1)(B) of ERISA. Specifically you wish to know whether the deposit of a letter of credit in an escrow account may |
| | satisfy the requirement. |
| | Section 4204(a)(1) provides that a withdrawal from a multiemployer plan "does not occur solely . . . as a result of a bona |
| | fide, arm's-length sale of assets to an unrelated party" provided that certain conditions are met. Section 4204(a)(2)(B) |
| | provides one of the conditions: |
| | (B) the purchaser provides to the plan for a period of 5 plan years commencing with the first plan year beginning after the |
| | sale of assets, a bond issued by a corporate surety company that is an acceptable surety for purposes of Section 412 of |
| | this Act, or an amount held in escrow by a bank or similar financial institution satisfactory to the plan, in an amount equal |
| | to the greater of -- |
| | (i) the average annual contribution required to be made by the seller with respect to the operations under the plan for the 3 |
| | plan years preceding the plan year in which the sale of the employer's assets occurs, or |
| | (ii) the annual contribution that the seller was required to make with respect to the operations under the plan for the last plan |
| | year before the plan year in which the sale of the assets occurs, |
| | which bond or escrow shall be paid to the plan if the purchaser withdraws from the plan, or fails to make a contribution to |
| | the plan when due, at any time during the first 5 plan years beginning after the sale. . . . [Emphasis added.] |
| | In our view a letter of credit held in escrow satisfies the requirements of Section 4204(a)(1)(B). We note, however, that it |
| | is within the plan's discretion whether a given institution is an acceptable party to hold a letter of credit in escrow under |
| | Section 4204(a)(1)(B). The plan sponsor is responsible under Section 4204 for determining the acceptability of any |
| | agreements such as those which you provided for our examination. |
| | Mitchell L. Strickler |
| | Deputy General Counsel |