Asset Purchasers Can Assume ERISA Liability for Underfunded Pension Plans
When a target company participates in an ERISA-regulated multiemployer pension plan, the acquiring company generally faces a number of unique issues. The most important of these is that the acquirer is likely to take on any liability for the multiemployer plan’s underfunding, even if the transaction is structured as an asset purchase.
In Einhorn v. Ruberton Construction Co., decided on January 21, 2011, the Third Circuit Court of Appeals followed a number of other circuits and held that a company purchasing assets from another company may be liable for delinquent pension contributions to multiemployer pension or health funds. As a result, asset purchasers must consider ERISA liability when deciding whether or not to purchase another company’s assets.
The Third Circuit considered whether Ruberton Construction Company could be held liable under two collective bargaining agreements it had entered into with the union, as a successor employer to the original signatory to the agreements, Statewide Hi-Way Safety, Inc., who sold its assets to Ruberton for $1.6 million. In its decision, the Third Circuit considered the circumstances under which a purchaser of assets would bear liability under ERISA for delinquent employee benefit fund contributions. The Third Circuit held that successor liability could be appropriate where (1) the successor was on notice of the underfunding, (2) there was sufficient continuity of both workforce operations between the corporate entities, and (3) the predecessor could not provide adequate relief (and had ample time to insulate itself from liability through the negotiation process).
Of further concern to the Third Circuit was the policy goal underlying ERISA to protect both plan participants and their beneficiaries. The Court reasoned that if successor liability were not imposed, other employers would have to make up the difference so that beneficiaries could receive their health care benefits, which would be contrary to the Congressional policy underlying multiemployer pension funds, thus making it appropriate to expand successor liability. However, such a determination should be made on a case-by-case basis.
The decision will have a significant impact on the future structure of asset purchases, and buyers will now need to consider how to protect themselves when negotiating with a company that has a multiemployer plan.
As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.
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