PRIA, Government Policy, Made Personal

Summary

A seller does not automatically stop owing pension-plan obligations just because it sells assets to an unrelated buyer and stops the covered work, so long as three things happen. The buyer must agree to pay into the plan for about the same number of contribution base units the seller had. The buyer must give a bond or put money in escrow for 5 plan years after the sale. That bond or escrow must equal the larger of (1) the seller’s average yearly contribution for the 3 plan years before the sale, or (2) the seller’s contribution for the last plan year before the sale. The sale contract must say that if the buyer withdraws from the plan or fails to pay during those 5 plan years, the seller is secondarily responsible and must pay what it would have owed. If the buyer pulls out before the end of the fifth plan year and does not pay, the seller must pay the amount the seller would have owed. If the seller liquidates or gives away all or part of its assets during that 5-year period, the seller must post a bond or escrow equal to the present value of the withdrawal debt it would otherwise have. The buyer’s liability is figured as if it had been making the seller’s required contributions in the sale year and the four years before. If the plan is in reorganization in the sale year, the buyer’s bond or escrow must be 200 percent of the amount above. The corporation that runs the rules can change or grant exceptions to the bond and contract rules after public notice and comment. “Unrelated party” means a buyer or seller without the close tax relationships listed in section 267(b) of title 26 or similar rules.

Title 29, §1384

Labor, Source: USLM XML via OLRC

(a)Complete or partial withdrawal not occurring as a result of sale and subsequent cessation of covered operations or cessation of obligation to contribute to covered operations; continuation of liability of seller

(1)A complete or partial withdrawal of an employer (hereinafter in this section referred to as the “seller”) under this section does not occur solely because, as a result of a bona fide, arm’s-length sale of assets to an unrelated party (hereinafter in this section referred to as the “purchaser”), the seller ceases covered operations or ceases to have an obligation to contribute for such operations, if—

(A)the purchaser has an obligation to contribute to the plan with respect to the operations for substantially the same number of contribution base units for which the seller had an obligation to contribute to the plan;

(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 1112 of this title, 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; and

(C)the contract for sale provides that, if the purchaser withdraws in a complete withdrawal, or a partial withdrawal with respect to operations, during such first 5 plan years, the seller is secondarily liable for any withdrawal liability it would have had to the plan with respect to the operations (but for this section) if the liability of the purchaser with respect to the plan is not paid.

(2)If the purchaser—

(A)withdraws before the last day of the fifth plan year beginning after the sale, and

(B)fails to make any withdrawal liability payment when due,

then the seller shall pay to the plan an amount equal to the payment that would have been due from the seller but for this section.

(3)(A)If all, or substantially all, of the seller’s assets are distributed, or if the seller is liquidated before the end of the 5 plan year period described in paragraph (1)(C), then the seller shall provide a bond or amount in escrow equal to the present value of the withdrawal liability the seller would have had but for this subsection.

(B)If only a portion of the seller’s assets are distributed during such period, then a bond or escrow shall be required, in accordance with regulations prescribed by the corporation, in a manner consistent with subparagraph (A).

(4)The liability of the party furnishing a bond or escrow under this subsection shall be reduced, upon payment of the bond or escrow to the plan, by the amount thereof.

(b)Liability of purchaser

(1)For the purposes of this part, the liability of the purchaser shall be determined as if the purchaser had been required to contribute to the plan in the year of the sale and the 4 plan years preceding the sale the amount the seller was required to contribute for such operations for such 5 plan years.

(2)If the plan is in reorganization in the plan year in which the sale of assets occurs, the purchaser shall furnish a bond or escrow in an amount equal to 200 percent of the amount described in subsection (a)(1)(B).

(c)Variances or exemptions from continuation of liability of seller; procedures applicable

The corporation may by regulation vary the standards in subparagraphs (B) and (C) of subsection (a)(1) if the variance would more effectively or equitably carry out the purposes of this subchapter. Before it promulgates such regulations, the corporation may grant individual or class variances or exemptions from the requirements of such subparagraphs if the particular case warrants it. Before granting such an individual or class variance or exemption, the corporation—

(1)shall publish notice in the Federal Register of the pendency of the variance or exemption,

(2)shall require that adequate notice be given to interested persons, and

(3)shall afford interested persons an opportunity to present their views.

(d)“Unrelated party” defined

For purposes of this section, the term “unrelated party” means a purchaser or seller who does not bear a relationship to the seller or purchaser, as the case may be, that is described in section 267(b) of title 26, or that is described in regulations prescribed by the corporation applying principles similar to the principles of such section.

Notes & Related Subsidiaries

Editorial Notes

Amendments

1989—Subsec. (d). Pub. L. 101–239 substituted “Internal Revenue Code of 1986” for “Internal Revenue Code of 1954”, which for purposes of codification was translated as “title 26” thus requiring no change in text.

Statutory Notes and Related Subsidiaries

Effective Date

of 1989 AmendmentAmendment by Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 7891(f) of Pub. L. 101–239, set out as a note under section 1002 of this title.

§1384 Sale of Assets