| | 92-3 |
| | May 1, 1992 |
| | REFERENCE: |
| | 4204(a)(3) Sale of Assets. Bond Requirement on Liquidation of Seller |
| | OPINION: |
| | We are responding to your letter requesting the opinion of the Pension Benefit Guaranty Corporation ("PBGC") concerning |
| | Section 4204(a)(3)(A) and (B) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1384(a)(3)(A) and |
| | (B). You ask whether a seller subject to Section 4204 must post a bond when it subsequently sells or transfers all its |
| | assets or a portion thereof to a purchaser, or transfers assets to a shareholder or corporate officer. More specifically, you |
| | ask whether these transactions are "distributions" triggering the bonding requirement of Section 4204(a)(3). |
| | As your letter indicates, Section 4204 of ERISA provides an exception to the general rule imposing withdrawal liability when |
| | a contributing employer withdraws from a multiemployer plan in the case of the employer's "bona fide, arm's-length sale |
| | of [its] assets to an unrelated party . . ." where certain requirements are met. One of those requirements is that the sales |
| | contract between the employer selling assets (the "seller") and the purchaser must provide for the secondary liability of the |
| | seller to the plan for any withdrawal liability it would have had to the plan but for Section 4204, if the purchaser withdraws |
| | from the plan during the first five plan years beginning after the sale and fails to pay its withdrawal liability. Section |
| | Section 4204(a)(3)(A) provides that if all, or substantially all, of the seller's assets are distributed, or the seller is liquidated |
| | before the end of the first five plan years beginning after the sale, then the seller must provide a bond or place an amount |
| | in escrow equal to the present value of the withdrawal liability the seller would have had, but for the operation of Section |
| | 4204. Absent such liquidation or distribution, Section 4204(a)(3)(A) does not require a bond or escrow when the seller sells |
| | Generally, the purpose of Section 4204 is "to protect the plan . . . against a significant diminution of its contribution base |
| | without compensation through withdrawal liability." Staff of Senate Comm. on Labor and Human Resources, 96th Cong., 2d |
| | Sess., Report on S. 1076, The Multiemployer Pension Plan Amendments Act of 1980: Summary and Analysis of |
| | Consideration at 16 (Comm. Print 1980). Correspondingly, the purpose of subsection (a)(3) is to ensure that the plan's |
| | secondary claim against the seller is not jeopardized by a diminution in the value of the seller as a result of a liquidation or |
| | a complete or partial distribution of assets. In its common and ordinary sense, a sale of assets entails an exchange of |
| | assets for cash or a thing of value. See Commissioner of Internal Revenue v. Brown, 380 U.S. 563, 571, 85 S. Ct. 1162, |
| | 1166 (1965). Such a sale would not jeopardize the plan's claim, provided fair value is obtained. Section 4204 was intended |
| | "to assure the protection of the plan with the least practical intrusion into business transactions." Senate Labor Summary, |
| | supra, at 16. Nonetheless, if a distribution or liquidation occurs concurrently with the sale, the requirements of Section |
| | 4204(a)(3) may be triggered at that time. |
| | If only a portion of the seller's assets are distributed or liquidated during the five-year period, then the seller must provide |
| | a bond or escrow in accordance with regulations prescribed by the PBGC. See Section 4204(a)(3)(B). PBGC has yet to |
| | promulgate regulations prescribing the manner in which such a bond amount shall be calculated. Pending the issuance of |
| | PBGC regulations, the plan sponsor should act reasonably and in accordance with the purpose of the subsection. See |
| | Multiemployer Pension Plan Amendments Act of 1980, Pub. L. No. 96-364, § 405(a), 94 Stat. 1208, 1303 (1980). A partial |
| | distribution of assets or liquidation will trigger Section 4204(a)(3)(B)'s bonding requirement when and to the extent the plan |
| | sponsor has reason to believe that a bond is necessary to ensure that assets are available to satisfy the seller's potential |
| | liability in light of the particular facts and circumstances at that time. |
| | Your letter indicates that the fund in question requires contributing employers to post a bond whenever they sell assets or |
| | transfer assets to an officer or shareholder. Subsequently, you have informed us that this is the case only if the seller |
| | and purchaser have elected to treat the sale as one within Section 4204. As indicated above, Section 4204(a)(3) requires a |
| | bond or escrow only when the transaction is within Section 4204 and when the seller's assets are concurrently or |
| | subsequently "distributed" or the seller is "liquidated." A sale of assets for fair market value in an arm's-length transaction |
| | to an unrelated party, without more, is not a distribution or liquidation as meant by Section 4204(a)(3). Your letter does not |
| | set forth specific facts regarding the particular distribution of assets or liquidation in question. At any rate, ERISA |
| | assigns initial responsibility to the plan sponsor for determining whether a withdrawal has occurred, determining liability, |
| | notifying the employer, and collecting the amount due. Sections 4202 and 4219(b)(1). The statute further provides that an |
| | employer's dispute with respect to the plan sponsor's determination is to be resolved through arbitration, subject to review |
| | in the courts. Section 4221; 29 C.F.R. § 2641.1. |
| | I hope that this response has been helpful. If you have any further questions please do not hesitate to contact Russell |
| | Galer of my staff at (202) 778-8822. |
| | Carol Connor Flowe |
| | General Counsel |