| 86-6 |
| March 11, 1986 |
| REFERENCE: |
| 4204 Sale of Assets |
| 29 CFR 2643 Variances or Exceptions from Bond Requirements |
| OPINION: |
| This is in response to your request for reconsideration of Opinion Letter 85-31, issued by the Pension Benefit Guaranty |
| Corporation ("PBGC) on December 30, 1985, and for a waiver of the requirements under section 4204(a)(1)(B) and (C) of |
| the Employee Retirement Income Security Act ("ERISA") regarding the furnishing of a bond or escrow and the use of |
| certain contract language in connection with a sale of assets. |
| Opinion Letter 85-31 considered the application of subpart B of the PBGC's regulation on Variances for Sales of Assets (29 |
| CFR Part 2643) to a sale that met all the requirements of section 4204 of ERISA except those in paragraphs (a)(1)(B) and |
| (C). The sale was closed in June 1981 under a contract signed in November 1980; the plan demanded withdrawal liability |
| from the seller in February 1983; the seller first raised the issue of section 4204 with the plan in September 1983; and the |
| plan sued the seller for withdrawal liability (and has since obtained a judgment against the seller). |
| Opinion Letter 85-31 concluded that subpart B of the regulation did not apply to the sale, citing the fact that a bond or |
| escrow had not been furnished by the beginning of the first plan year following the date of sale. The opinion letter stated |
| that, in general, the furnishing of the bond or escrow by the beginning of the first plan year after the sale was requisite to |
| the applicability of section 4204, and thus to the applicability of subpart B of the regulation. This conclusion is supported |
| by language in PBGC Opinion Letter 83-8 and in the preamble to subpart B of the regulation. |
| You point out in your request, however, that in the same preamble, the PBGC stated (at 49 FR 22636) that the: |
| criterion [for waiving the bond/escrow and contract language requirements] set forth in . . . § 2643.12, incorporates without |
| change PBGC's class exemption for certain sales occurring prior to January 1, 1981. . . . PBGC issued this exemption on |
| August 10, 1982 (47 FR 34662) in the matter of RGZ, Inc. et al and then amended it on December 12, 1983 (48 FR |
| 55359) in the matter of A. A. Brown et al. |
| You state that [i]n both RGZ, Inc. and A. A. Brown, a bond or escrow never was obtained . . . ." You argue that since the |
| timely furnishing of a bond or escrow was not a condition to the class exemption granted in RGZ and Brown, and since § |
| 2643.12 incorporated that class exemption without change, the timely furnishing of the bond or escrow cannot be a |
| condition to the applicability of § 2643.12. |
| The RGZ and Brown cases did not focus specifically on the question of whether a bond or escrow had been furnished by |
| the beginning of the first plan year after the sale, since in neither case was the plan contesting the applicability of section |
| 4204. The PBGC agrees, however, that to insist on the furnishing of a bond or escrow by that date would circumscribe |
| significantly the usefulness of the exemption for pre-January 1, 1981 sales. The PBGC is therefore of the opinion that, |
| for cases under § 2643.12, the furnishing of a bond or escrow by the beginning of the first plan year following the date of |
| sale is not a necessary pre-condition. Opinion Letter 85-31 should be considered modified accordingly. |
| However, a seller may, nevertheless, lose the benefit of section 4204 of ERISA if it does not timely assert section 4204 |
| as a defense to a plan's claim for withdrawal liability. To do that in a case like the instant one, the seller must apply for a |
| waiver of the bond/escrow and contract language requirements and raise the section 4204 defense in a timely manner. |
| (Sections 4219 and 4221 of ERISA set forth the time limits for contesting a plan's determination of withdrawal liability.) |
| Whether an employer has a right to a waiver under § 2643.12 is moot if the waiver is sought after the time for asserting |
| section 4204 as a defense has passed. |
| Finally, you have requested the PBGC to grant a waiver of the bond/escrow and contract language requirements. We are |
| unable to do so. Under § 2643.2 of the regulation, the PBGC cannot (with one minor exception not applicable here) |
| consider a request for a waiver that is based on satisfaction of any of the tests in subpart B of the regulation (including § |
| 2643.12). Such a request must be made to the plan. A request for a waiver based on some other grounds may be made |
| to the PBGC. However, in that event the PBGC may consider the request only if it is submitted prior to the beginning of |
| the first plan year after the sale, or, failing that, if the bond or escrow was furnished before that date. |
| If you have any further questions about this matter, you may call Deborah Murphy of the PBGC's Corporate Policy and |
| Regulations Department at 202-956-5050. |
| Edward R. Mackiewicz |
| General Counsel |