Withdrawal Liability: Asset Sales and Exemptions Reviewed

If you are in a multiemployer pension plan as a result of union participation, you should be aware by now of the concept of withdrawal liability. Basically, withdrawal liability means that portion of unfunded vested liabilities that is allocated to an employer who ceases to have a contribution obligation to the multiemployer fund. The allocation occurs at the time of the withdrawal. However, there are certain exceptions to withdrawal liability and one of them is when there is a sale of assets and the buyer agrees to continue to participate in the pension fund in substantially the same way as the seller used to. If you are not in a multiemployer pension fund, you might want to stop reading now. ERISA Section 4204 is called the "asset purchase exception" and it provides that there will not be withdrawal liability solely because of a sale of assets if the purchaser assumes the liabilities. In a recent case, Central States, Southeast and Southwest Areas Pension Fund v. Georgia-Pacific (2011), the pension fund challenged the word "solely" to determine when in fact a withdrawal occurs. Georgia Pacific sold its assets to a buyer who assumed the contribution obligation in 2004. But prior to 2004, Georgia Pacific had gradually taken actions to decrease the numbers of employees in the pension fund without causing a partial withdrawal (which occur when the contribution obligation decreases but is not complete). The Fund said "hey, the withdrawal from the fund was not solely from the sale of assets, but occurred over time, so the asset purchase exception does not apply." In other words, they contended that the word "solely" meant it could be the ONLY occurrence of withdrawal. Since there had been prior actions that resulted in cessation of contributions, this was not the sole withdrawal. Fortunately for employers, the Seventh Circuit Court of Appeals disagreed. The Court said that while this was the first opinion that looked at this issue, it agreed with the arbitrator that the prior reductions should not be treated as a single transaction with the ultimate sale. These separate reductions had their own potential consequences and could not be tied to the actual final withdrawal. This decision is important for employers that are considering an asset purchase transaction and possible exemption. What is says is that the transaction will be viewed as its own withdrawal event. Prior steps taken to lower potential liability, like partial closing or reductions in force that do not trigger a partial withdrawal, do not cause the ultimate sale to fall outside of the 4204 exception. So in essence, this affirms that it is you are contemplating a sale in the future, it's OK to act in the present to reduce potential future issues. Knowing that these actions won't be held against you is a positive. For questions about withdrawal liability, multiemployer pension funds or union plans in general, please contact your attorney at Fox Rothschild.

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