§1405 Limitation on Withdrawal Liability

Summary

When an employer sells all or almost all of its business in a real, arm’s‑length sale to an unrelated buyer, the amount of unpaid pension benefits the buyer can be charged for that employer is limited. The limit is the larger of two things: a share of the employer’s liquidation value after the sale (calculated by a fixed formula), or, for plans that use the attributable method, the unpaid benefits that are specifically tied to that employer’s workers. The employer must not be in a bankruptcy reorganization under title 11 or similar state law for this sale rule to apply. The share is set by a sliding formula: up to $5,000,000 it is 30% of value; $5,000,001–$10,000,000 is $1,500,000 plus 35% of the excess over $5,000,000; $10,000,001–$15,000,000 is $3,250,000 plus 40% of the excess over $10,000,000; $15,000,001–$17,500,000 is $5,250,000 plus 45% of the excess over $15,000,000; $17,500,001–$20,000,000 is $6,375,000 plus 50% of the excess over $17,500,000; $20,000,001–$22,500,000 is $7,625,000 plus 60% of the excess over $20,000,000; $22,500,001–$25,000,000 is $9,125,000 plus 70% of the excess over $22,500,000; over $25,000,000 is $10,875,000 plus 80% of the excess over $25,000,000. If an employer is insolvent and is being liquidated or dissolved, the allocable unpaid benefits are capped at 50% of what would otherwise be allocable, plus whatever part of the remaining 50% fits under the employer’s liquidation value measured at the start of the liquidation after subtracting that first 50%. An employer is insolvent if its liabilities (counting withdrawal liability without the insolvency rule) are more than its assets at the start of liquidation. The liquidation value is figured without counting withdrawal liability. If the withdrawal comes from the same sale or liquidation more than once, the law treats all those withdrawals as one and divides the capped obligation among plans in proportion to their original shares. Also, if a person’s withdrawal liability is based on an individual business and that person has property exempt under bankruptcy code section 522 or similar law, that exempt property cannot be seized to pay the liability.