In general, an employer is liable to a multiemployer pension plan for its portion of the plan's underfunding, if any, when the employer withdraws from the plan in a complete or partial withdrawal. A complete withdrawal from a multiemployer pension plan occurs when an employer permanently ceased to have an obligation to contribute under the plan or permanently ceases all covered operations under the plan. A partial withdrawal occurs when there is a 70 percent contribution decline or there is a partial cessation of the employer's contribution obligation.
An asset sale (as opposed to a stock sale in which the buyer assumes the liabilities of the seller) typically leads to a complete or partial cessation of contributions or the obligation to contribute by the seller and, thus, can trigger withdrawal liability. Although the amount of liability varies depending on several factors, it could result in a severe and unexpected financial burden on the seller. However, under the Employee Retirement Income Security Act of 1974, a bona-fide, arm's length sale of assets to an unrelated party will not trigger withdrawal liability if: (1) the buyer has an obligation to contribute the plan in an amount that is substantially the same as the seller; (2) the buyer issues a surety bond to the plan; and (3) the asset sale contract provides that, if the buyer withdraws from the plan within five years of the sale, the seller is secondarily liable for withdrawal liability. In addition, if the sale does not comply with the above requirements, the buyer may still be liable under the "successor liability doctrine" adopted by some courts. The successor liability doctrine applies when the buyer has notice of the liability before the sale and there exists sufficient evidence of continuity of operations (continuity of the workforce, management, equipment and location, completion of work orders begun by the predecessor and constancy of customers) between the buyer and seller. Withdrawal liability is an often overlooked aspect of asset sales. It is important for the buyer and seller to consider the withdrawal liability implications of an asset sale in the early stages of negotiations because of the potential delay in collecting the information necessary to determine the amount of liability, which could greatly impact the purchase price. With proper planning and legal advice, an asset sale can be structured to avoid an unexpected withdrawal liability burden for both parties.
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