Monday, February 28, 2022

Successor Liability for Pension and Other ERISA Obligations (Compensation Planning Journal)

Successor Liability for Pension and Other ERISA Obligations

49 Compensation Planning Journal No. 9 p. 32 

Charles C. Shulman, Esq.*

One of the murky but interesting aspects of ERISA law — which has been revisited from time to time by the federal courts — has been the extent to which liability under ERISA will carry over to successors who purchase the assets rather than the stock of the business. This article explores the current state of the law regarding successor liability under ERISA.


The general common law rule is that a company that purchases assets of another company is not automatically responsible for the seller’s liabilities.[1] There are generally four exceptions—where successor liability will apply to a purchaser of all or substantially all of the assets of a seller.

Express or Implied Assumption of Liabilities

The first exception is where the purchasing company expressly[2] or impliedly[3] agrees to assume the selling company’s liabilities.

De Facto Merger

The second exception is where the transaction amounts to a “de facto merger”—i.e., buyer’s existing business and target business are deemed like a merger  ̶ looking to four factors which favor such a finding: (i) continuity of ownership (e.g., purchaser company pays for the assets with stock of the purchaser), (ii) continuity of the business enterprise, evidenced by continuity of management, personnel, physical location, assets and general business operations, (iii) dissolution of seller, and (iv) purchaser assuming obligations necessary for uninterrupted continuation of normal business operations of seller.[4] Many cases require the continuity-of-shareholders prong to find a de facto merger.[5]

Mere Continuation of Seller Entity.

The third exception is where the purchaser corporation is a “mere continuation” of the seller, i.e., merely a restructured or reorganized form of seller’s corporate entity and not simply a continuation of the business operation. This excep­tion is aimed at owners and directors who may dissolve one company and begin another to avoid debts and liabilities. Factors include: (i) common identity of officers, directors and shareholders in the selling and purchasing corporations (continuity of ownership or corporate structure), (ii) continuity of business operations, (iii) cessation of ordinary business by seller, and (iv) inade­quate consideration paid for assets.[6] Common identity of officers, directors and share­holders is the key element to finding mere continuation.[7] This “mere continuation” exception is very similar to the “de facto merger” exception and they are sometimes treated together in case law.[8] Note that the “de facto merger” and “mere continuation” tests above are narrower than the “continuity of operations” condition for pension successor liability under the Artistic Furniture line of cases discussed below, in that de facto merger and mere continuation generally require continuity of ownership, which is not the case in the pension successor liability cases, where continuity of operations typically suffices.

Fraudulent Transfer

The fourth exception is where the transfer of assets is for the fraudulent purpose of escaping liability for the seller’s debts.[9]

Product-Line Exception 

A small number of jurisdictions, including California and New Jersey, recognize an additional, more expansive exception under which successor liability might attach to an asset purchaser—the so-called “product line” doctrine.[10]

Tax Liability on Successor

Section 6901[11] sometimes imposes tax on a successor. Specifically §6901 allows the IRS to assess and collect taxes from the transferee of property in the same manner as it does in the case of the transferor entity that originally incurred the tax liability.[12]

Free and Clear Bankruptcy Asset Sale

Bankruptcy Code §363, 11 U.S.C. 363, allows a bankruptcy trustee to sell the property of the bankruptcy estate “free and clear” of any interest in the property.[13]


Broadened Application of Successor Liability for ERISA Obligations

Minimum funding pension obligations, Title IV termination liability, multiemployer withdrawal liability and other pension liabilities would seem to be treated like any other preexisting obligation that unless assumed by the buyer — or unless the common law exceptions for successor liability apply — the buyer of assets would not be liable for the seller’s obligations.

However, case law has expanded successor liability for certain obligations under ERISA in certain circumstances. Specifically, a number of cases have found successor liability for pension obligations if there is continuity of operations, as well as knowledge, even if this is no continuity of ownership, while in the non-ERISA context successor liability also requires continuity of ownership.

A number of cases — including circuit and district court decisions in the Seventh, Sixth, Second, Third, and Ninth Circuits — have found successors in asset purchases to be liable for the predecessors’ pension obligations under ERISA even where the general common law exceptions for successor liability would not ordinarily apply.

Most of the cases discussed below are in the multiemployer pension withdrawal liability contexts, but other cases expand successor liability in the context of single-employer pension plan termination liability, executive retirement plans, retiree health liability, ERISA fiduciary liability (according to some courts), labor law and unfair labor practices, and employment discrimination contexts.

ERISA Successor Liability— Seventh Circuit 1990 Artistic Furniture Case Regarding Unpaid Contributions to Multiemployer Pension Plan— Continuity of Business Operations and Notice.

In Upholsterers’ International Union Pension Fund v. Artistic Furniture of Pontiac,  the Seventh Circuit held that under ERISA a purchaser of assets could be liable for delinquent pension contributions owed by the seller to a multiemployer pension fund maintained by the union even when the common-law successor liability exceptions do not apply; provided, that: (i) there is sufficient evidence of continuity of operations and (ii) the purchaser had knowledge of the liability of the seller.[14] There would be no requirement for continuity of ownership, as there are under the common law exceptions for successor liability.

In Artistic Furniture, the old employer, Pontiac Furniture, ceased making contributions to a multiemployer pension fund when it had severe financial difficulties beginning March 1984. Eventually, the main creditor of Pontiac foreclosed on Pontiac and sold its assets to Artistic Furniture, an unrelated company, in August 1985. In connection with the purchase, the buyer - Artistic Furniture - negotiated a new collective bargaining agreement with the union including the obligation to contribute to the multiemployer pension fund. However, the buyer did not specifically assume liability for the delinquent pension fund contributions that were not paid by the seller between March 1984 and August 1985. The pension fund sued both parties for delinquent pension contributions. There was apparently no claim for any withdrawal liability since the buyer bargained to continue in the pension fund.

The Seventh Circuit cited Supreme Court in Golden State Bottling Co. v. N.L.R.B.,[15] in finding, that liability of asset purchaser for unfair labor practice (unlawful discharge) under the NLRA could be imposed on the successor who continued the predecessor’s operations and who had notice of the pending unfair labor practice charge at the time of the transaction, even though there was no continuity of ownership (and therefore no de facto merger or mere continuation). This protects Congressional intent under the National Labor Relations Act of avoidance of labor strife and fee exercise of the employees’ rights under the NLRA, and are achieved at a relatively minimal cost to the bona fide successor, with minimal economic cost because the buyer is aware of the obligation. Similar conclusions have been reached for other labor law obligations and employment discrimination laws. Artistic Furniture applied the rationale of Golden State Bottling Co. to multiemployer pension liability under ERISA.[16]

ERISA §515, which requires employers to honor their obligations under the plan or the labor agreement to make the contributions to the pension fund, should be imposed on successors as well since ERISA’s purpose is to protect other employers in the fund and the PBGC (and presumably employees if their benefits are affected), which applies when delinquent contributions are made. However, this successor liability will only apply where there was sufficient evidence of (i) continuity of operations, and (ii) prior knowledge by the buyer of this liability.

The Seventh Circuit held that there was sufficient evidence of continuity of operations since Artistic Furniture: (i) employed substantially all the workforce, (ii) operated from the same location, (iii) used predecessor’s machines, (iv) produced the same products, (v) completed open work orders, (vi) honored the predecessor’s warranties, and (vii) two of its officers remained with the successor. The owners, officers and directors were all different (except for one CFO who stayed on). The court stated that it did not matter that there was no continuity of ownership. The case was remanded to district court, though, to determine if there was sufficient knowledge of the liability.

Comment on Artistic Furniture Case — Are ERISA Laws Like Unfair Labor Practices & Employment Discrimination Laws?

The rationale for broadened successor liability for labor law obligations and employment discrimination is that these statutes were enacted to protect employees, and where there is continuity of operations, employees should be able to expect to retain these protections from their current employer. Artistic Furniture expands this rationale to ERISA liability for delinquent contributions to multiemployer plans because ERISA is intended, among other purposes, to protect other employers and the PBGC. Query whether this is a good analogy—unfair labor practice rules and nondiscrimination laws are intended to protect the employee vis-à-vis the employer. But for multiemployer pension contributions the parties protected are primarily other employers in the fund and the PBGC and they should be like any other contractual obligation that is subject to the common law successor liability rules. There are some benefits to employees also, by avoiding the plan becoming bankrupt and employees losing a portion of their benefits, as stated below.

A similar question is raised by Einhorn v. M.L. Ruberton Const. Co.,[17] which is one of the few cases to disagree with the Artistic Furniture broadened successor liability, although this holding was subsequently overturned by the Third Circuit in Einhorn v. M.L. Ruberton Construction Co.,[18] as noted below. The district court in the above case disagreed with Artistic Furniture and held that ERISA obligations are different than unfair labor practice or employment discrimination laws because the unfair labor practice and nondiscrimination rules are designed to protect the employees, while successor liability for delinquent contributions or withdrawal liability to multiemployer funds is a corporate debt to multiemployer fund and is not a law directly protecting the employee. A counter-argument to Einhorn is that ERISA rules, while enforcing the union’s pension fund, indirectly protect employees from losing benefits if the multiemployer plan does not have enough assets to meet its obligations, and the PBGC guarantees are not sufficient.[19]  In any event, the district court ruling was overturned by the Third Circuit.

It Does Not Matter That a Collective Bargaining Agreement Imposed the Obligation for the Contribution

Note that finding successor liability in the Artistic Furniture could not have been based entirely on the fact that a collective bargaining agreement required the contribution to the fund, because under labor law successors are generally not bound to the specific provision of the collective bargaining agreement—although they do have a duty to bargain in good faith—unless the contract was specifically assumed or the successor is found to be the alter-ego of the predecessor (see below).

Other Seventh Circuit Cases Finding Expanded ERISA Successor Liability

Several other Seventh Circuit decisions have found expanded successor liability in ERISA withdrawal liability cases. See, e.g., Moriarty v. Svec,[20] holding that where the son of the owner took over operations and had knowledge of liability, there was successor liability to the multiemployer pension and welfare fund).[21]   Similarly, a 2014 Seventh Circuit case, Sullivan v. Running Waters Irrigation, Inc., held that where a son's businesses contained a substantial continuity of operations of the father’s irrigation business, and the son had knowledge of the multiemployer pension obligations there would be successor liability.[22]

A 2015 Seventh Circuit case, Tsareff v. ManWeb Services, Inc., held that in an asset sale where the buyer had notice of contingent withdrawal liability to the multiemployer pension plan, even though the asset purchase agreement specifically excluded plan liability assumption, and the notice was only contingent (no withdrawal had occurred), successor liability could nevertheless apply to the purchaser, and therefore the court denied summary judgment which the buyer had sought, and the court remanded the case to the district court to determine if there was a continuity of operations, which is the other prong for successor liability.[23]

A 2016 Seventh Circuit case, Board of Trustees of Automobile Mechanics’ Local No. 701 Union and Industry Pension Fund v. Full Circle Group, Inc., held that multiemployer withdrawal liability could be imposed on an asset purchaser even though the purchaser may not have had knowledge about the possibility of withdrawal liability before signing the purchase agreement because the purchaser certainly knew that the company was unionized and would have almost certainly known that the company was required to contribute to a union pension fund.[24]

A 2018 Seventh Circuit case, Indiana Electrical Workers Pension Benefit Fund v. ManWeb Services, Inc., held that there could be successor liability for ERISA withdrawal obligations n an asset buyer with notice and substantial continuity of operation, even though it was a "big buyer," i.e., the seller's business was only a small portion of the purchaser's operations.[25]

Expanded ERISA Successor Liability in Other Circuits

Ninth Circuit [S3]

Ninth Circuit cases (some of which predate and are cited in Artistic Furniture) have extended successor liability concerning ERISA pension and welfare obligations under collective bargaining agreements where there is a successor with substantial continuity between the old and new operations (even without continuity of ownership).[26]

A 2015 Ninth Circuit caseheld that an asset purchaser of a floor covering business could have successor liability for the seller’s withdrawal liability as long as there was continuity of operations and the buyer had notice of potential liability. In addition, the court held that the successor employer could continue to be liable despite the “building and construction industry” exception of ERISA §4203(b)[27] since if there is a common-law successor liability the business and construction industry employer will be viewed as if it had continued and there will be no ERISA §4203(b) exception.[28]

A 2018 Ninth Circuit case, held that there was successor liability on a private equity group that purchased a Hawaiian hotel in an asset purchase for the seller's multiemployer withdrawal liability to a multiemployer pension plan because of constructive notice of the seller's pension liability.26

Second Circuit

In Stotter Division of Graduate Plastics Co. Inc. v. District 65, UAW,[29] the Second Circuit ruled that an asset purchaser could be liable for the predecessor’s unpaid contributions to a multiemployer plan in accordance with the bargaining unit contract, and it upheld an arbitrator’s decision to that effect.[30]

Sixth Circuit [S3]

A 2008 district court decision in the Sixth Circuit, Schilling v. Interim Healthcare of Upper Ohio Valley, Inc., applied broad successor liability in ERISA contexts such as multiemployer withdrawal liability, like the Seventh Circuit Artistic Furniture case.[31] In addition, the Sixth Circuit 2018 case of PBGC v. Findlay Industries, Inc., et al.,[32] discussed below, has expanded successor liability even to single-employer pension termination liability.

Third Circuit –District Court case disagreed with Artistic Furniture but was Overturned by the Third Circuit

A New Jersey 2009 district court casewas one of few cases and perhaps the only federal case to specifically disagree with Artistic Furniture. The district court held that ERISA is different than labor law unfair labor practice claims or employment discrimination laws because those laws are designed with Congressional intent to directly benefit the employees, while successor liability to a multiemployer fund for delinquent contributions or withdrawal liability is a corporate debt to the multiemployer fund and is not a law directly protecting the employee.[33]

However, the Third Circuit in a 2011 decisionoverturned the district court decision and held that a purchaser could be held liable for successor liability for the predecessor employer’s delinquent multiemployer pension contributions because of continuity of operations (continuity of workforce, management, equipment and location, completion of work orders begun by predecessor, constancy of customers, and notice of the liability before the sale) even without continuity of ownership.[34]

There are also other district course cases in the Third Circuit cases providing for expanded successor liability.[35]

Other Circuits

It is unclear whether any other circuits would disagree with Artistic Furniture’s ERISA successor liability rule.

Why Should Asset Sale Trigger Withdrawal Obligation if Buyer Has Successor Liability?

Note that even though there may be successor liability on the withdrawal liability or other liability to the fund, the asset sale itself would appear to still be treated as a withdrawal under ERISA (unless an ERISA §4204 contract is entered into). This result is puzzling: If the asset sale is disregarded by having the buyer pick up liability as a successor, why should a sale of assets be treated as a withdrawal under ERISA? It would appear that by operation of law there is a withdrawal (and the parties may be bound to the form they have chosen), and although equity dictates that there should be recourse against successors this does not change the basic nature of the asset sale.


Successor Liability for Single-Employer Plan Termination Liability

A 2018 Sixth Circuit case, PBGC v. Findlay Industries, Inc.,[36] has applied broad successor liability for single-employer Title IV termination liability. In that case, Findlay Industries folded in 2009 and its assets were indirectly sold to companies owned by the son of the founder. The business in hands of the son's companies soon began to run the same plants, hiring many of the same employees, and selling to the former company's largest customer. The Sixth Circuit, overturning the lower court, ruled that the expanded successor liability should be applied to ERISA obligations, such as single-employer pension plan termination liability under ERISA, since there was a continuation of the business since this broadened successor liability services fundamental ERISA policies. The Sixth Circuit did note that several circuits have broadened successor liability in ERISA MPPAA withdrawal, for example, the Seventh Circuit and Ninth Circuit cases cited above.[37]

Successor Liability for Retiree Health and Other Welfare Obligations

Regard­ing successor liability for retiree health or other welfare obligations in an asset sale, common-law successor liability exceptions would apply (i.e., express or implied assumption, de facto merger, mere continuation of seller or transfer for fraudulent purposes).

However, several cases have applied broadened successor liability for retiree health or other ERISA welfare benefits where there is continuity of operations and notice of liability (even if there is no continuity in ownership), and ERISA’s broadened successor liability is not limited to pension liability.[38]

Successor Liability for Top-Hat Supplemental Pension Obligation

In Brend v. Sames Corp.,[39] the court applied the expanded ERISA successor liability of Artistic Furniture to obligations under a top-hat executive retirement plan since top-hat plans are generally subject to ERISA.[40] The court noted that while top-hat employees need less protection than rank and file employees, ERISA nevertheless found it appropriate to offer the protections of ERISA to all employees.

Whether ERISA Fiduciary Obligations Have Expanded Successor Liability [S2] [UC/LC]

Concerning ERISA fiduciary liability, a 2009 district court case has held that ERISA fiduciary liability would not have broadened successor liability.[41] However, another 2003 district court case stated in dictum that ERISA fiduciary duties could have broadened ERISA successor liability.[42] Where a buyer specifically assumes the ERISA obligation, the buyer will have successor fiduciary liability.[43]


As stated above, the Supreme Court in Golden State Bottling Co. v. N.L.R.B., 414 U.S. 168 (1973), held that liability of asset purchaser for unfair labor practice (unlawful discharge) under the NLRA (where a union member was discharged for allegedly engaging in protected union activities) could be imposed on successor who continues predecessor’s operations and who had notice of the pending unfair labor practice charge at the time of the transaction, even though there was no continuity of ownership (and therefore no "de facto merger" or "mere continuation"). This protects This protects Congressional intent under the National Labor Relations Act of avoidance of labor strife and fee exercise of the employees’ rights under the NLRA, and are achieved at a relatively minimal cost to the bona fide successor, because buyer is aware of the obligation. Similar conclusions have been reached for other labor law obligations and employment discrimination laws.[44] 

Similarly, the courts have imposed broadened successor liability in cases involving employment discrimination.[45]

The National Labor Relations Act of 1935, which deals with the establishment of collective bargaining relationships, imposes an obligation on an employer and union to bargain in good faith.[46]  When a corporation is taken over by a new employer in an asset sale with substantial continuity of operations and workforce, there is an obligation on the new employer to bargain in good faith with the existing union representatives.[47]  However, unless the buyer specifically assumes the contract or is found to be the alter-ego of the predecessor, the new employer is not bound by the specific terms of the existing collective bargaining agreement.[48]


Emergence from Bankruptcy Like an Asset Sale [S2] [UC/LC]

With regard to a stock sale or merger, the purchaser should in the ordinary course step into the shoes of the seller for any termination liability even if they resulted from termination of the plan when it was with the seller.[49] However, where a purchaser in a stock sale or merger acquires a bankrupt corporation with its pension plan, courts have held that the purchaser would not have controlled group liability because the ownership interests have been extinguished in the bankruptcy, and there would not be successor liability.[50] In a case where successor liability would apply to an asset purchaser, the purchaser from the bankruptcy could also have successor liability.[51]

Alter-Ego Theory as Applied to Asset Purchases [S2] [UC/LC]

As discussed above, on occasion courts have found a shareholder liable for ERISA and other liabilities of the corporation under the doctrine of piercing the corporate veil (alter ego), for example, where there is fraud, disregard by the owner of the separate character of the corporation or shareholders undercapitalize the corporation. Courts have sometimes used alter ego theory to apply successor liability.[52]

ERISA §4069(b) and §4218 Successor Liability for Mere Changes in Form [S2] [UC/LC]

To avoid controlled group liability, companies sometimes attempt to remove themselves from the controlled group. ERISA §§4069(b) and §4218 provide that for purposes of termination liability and withdrawal liability, respectively, if an entity ceases to exist merely because of a change in identity or form, a liquidation into the parent corporation or a merger, consolidation or division, the successor will remain liable for the liability. This provision would not, however, cover ordinary asset sales. Successor liability in asset sales would be subject to the case law discussed above.

ERISA §4069(a) Liability [S2] [UC/LC]

To avoid controlled group liability, companies sometimes attempt to remove themselves from the controlled group. Typically, this takes the form of a company selling or spinning off a subsidiary or division and transferring severely underfunded pension plans with those sold subsidiaries or divisions. The PBGC has been successful in certain cases in having a court declare such a transaction as a sham.[53] In addition, the PBGC was successful in having ERISA §4069 enacted in 1986 as part of SEPPAA.

ERISA §4069(a) provides that if a person enters into a transaction with a principal purpose of evading liability under Title IV, the PBGC can assert liability on such person as if it was still a member of the controlled group for any plan termina­tion that results within five years of the transaction.[54]

ERISA §4212(c)

If a principal purpose of a transaction is to evade or avoid liability, withdrawal liability is imposed as if the transaction had not occurred (i.e., even if the entity left the controlled group in the transaction).[55] Several cases have applied ERISA §4212(c) to impose withdrawal liability. Other cases have held that ERISA §4212(c) did not apply despite the avoidance of withdrawal liability. Courts have on occasion found individuals liable under ERISA §4212(c) for participating in a scheme to evade or avoid liability even though multiemployer withdrawal liability generally only applies to the employer. ERISA §4212 does not have the five-year limit that ERISA §4069 has (regarding attempt to evade termination liability).

Successor liability [S2] [UC/LC]

In a corporate transaction, assuming there was no intent to evade liability and ERISA §4069 and §4212(c) are not applicable, the general successor liability rules should apply, i.e. the ordinary common law exceptions to lack of successor liability and the broadened successor liability rules for ERISA obligations under the Artistic Furniture line of cases.


Asset Sale as a Withdrawal

An asset sale will result in a withdrawal from the plan by the seller. This may be advantageous to the buyer, as the buyer will not be liable, absent some successor liability theory. For the seller, however, a stock sale would be preferable, as there would be no automatic withdrawal from the multiemployer plan. Another option is an ERISA §4204 contract discussed below.

ERISA §4204 Contracts to Avoid Multiemployer Liability in Asset Sales

As discussed above, where an asset sale occurs there has by definition been a complete withdrawal by the target since it ceases to exist, and even if the buyer continues to make required contribu­tions, members of the controlled group of the target, e.g., the seller, could be liable for with­drawal liability. There is a statutory exception, however, in ERISA §4204, under which a complete or partial withdrawal will not occur solely because,[56] as a result of a bona fide arm’s-length sale of assets to an unrelated party, the seller ceases covered operations or ceases to have an obligation to contribute for such operations, provided that the following are met: (i) the purchaser obligates to contribute a similar amount as the seller (i.e., substantially the same number of base contribution units) (ERISA §4204(a)(1)(A)); (ii) for a period of five plan years after the sale, the purchaser posts a bond or escrow equal to one year of the Seller’s contributions, i.e., the average annual contribution required based on the greater of the previous three years or the annual contribution required over the last year, and the bond or escrow will be paid to the plan if the purchaser withdraws or fails to make contributions to the plan during the five year period (ERISA §4204(a)(1)(B)); and (iii)the contract of sale must provide for the seller to be secondarily liable if the buyer withdraws within a five-year period and does not make payment (ERISA §4204(a)(1)(C)). Such an arrangement is referred to as a ERISA §4204 contract.

If the purchaser withdraws before the end of the fifth year after the sale and fails to make withdrawal liability payments, the seller must pay the plan the amount that it would have been obligated to pay absent the ERISA §4204 contract.[57] There may also be a seller bond/escrow requirement in the following situation: if the seller sells substantially all of its assets or liquidates within the five-plan year period after the sale, the seller must post a bond or escrow for the amount that the seller would be liable absent the ERISA §4204 contract.[58]

If the above requirements are met so that the seller has no liability, the buyer inherits the five-year contribution history of the seller.[59] An advantage to ERISA §4204 is that if the seller has a long contribution history, taking the liability of only the last five years of contributions can shed a company of a significant portion of potential withdrawal liability.

The PBGC has the authority to waive the purchaser bond/escrow requirement and contractual seller secondary liability requirement of ERISA §§4204(a)(1)(B) and §4204(a)(1) (C). ERUnder this authority, PBGC regulations enacted in 1984 contain a class variance of the bond or escrow requirement and of the contractual requirement for the seller to be secondarily liable if a buyer notifies the plan of its intention that the sale is to be covered by ERISA §4204 and demonstrates to the satisfaction of the plan that one of the following exceptions apply: (i) the bond or escrow would not exceed the lesser of $250,000 or 2% of the average total annual contributions made by all employers to the plan for the three most recent plan years; (ii) the purchaser’s average net income after taxes for the most recent three years equals or exceeds 150% of the amount of bond or escrow required; or (iii) the purchaser’s net tangible assets as defined in PBGC Reg. §4204.2 equal or exceed the otherwise allocable share of unfunded vested benefits. PBGC Reg. §4204.11-4204.13. The request for a variance must contain financial or other information sufficient to establish that one of these exceptions are met, and pending the plan’s decision as to whether the variance is met, the purchaser cannot be required to post the bond or escrow. PBGC Reg. §§4204.11(b), PBGC Reg. §4204.11(c),  PBGC Reg. §4204.11(d). An individual exemption is also available pursuant to ERISA §4204(c) under PBGC Reg. §§4204.21 and §4204.22.

  ERISA §4204 and PBGC Reg. §4204 do not specifically state that seller and purchaser are each determined on a controlled group basis, but based on ERISA rules generally, seller and purchaser should be interpreted as each being determined on a controlled group basis. 

Where there is no ERISA §4204 contract, purchasers of assets are generally not held liable. However, see generally above regarding successor liability for pension obligations. Also, the Seventh Circuit has held that even where there is no §4204 contract the purchaser of assets may be liable under the provisions of a particular collective bargaining agreement for withdrawal liability.[60]


Successor liability in ERISA contexts—such as multi­employer withdrawal liability—would, according to case law, be applicable if there is a continuity of operations and notice to the buyer even if there is no continuity of ownership. This expanded successor liability has been applied by courts not just to withdrawal liability, but also to other ERISA contexts, such as single-employer plan termination liability, top-hat plan, retiree health and welfare plan obligations. In addition, case law has applied broad successor liability for labor law obligations to bargain in good faith and employment discrimination claims. Care must be taken by buyers in asset acquisitions to account for possible broadened successor liability.

* Charles C. Shulman, Esq., Teaneck, NJ.  If you have any questions or comments, feel free to contact Charlie at or 201-357-0577.

[1]    See, e.g., Dayton v. Peck, Stow and Wilcox Co. (Pexto), 739 F.2d 690, 692 (1st Cir. 1984) (successor not liable in product liability action since the purchase of assets did not meet any of the four exceptions to the general rule); Murray v. Miner, 74 F.3d 402 (2d Cir. 1996) (based on New York law, shareholders of successor corporation not liable for breach of employment contracts where there was no employer-employee relationship between employees and successor at the time of alleged wrong); Berg Chilling Systems, Inc. v. Hull Corp., 435 F.3d 455 (3d Cir. 2006) (buyer of manufacturer’s assets had no successor liability). See generally 15 Fletcher Cyclopedia of the Law of Private Corporations, §7122, §7124, §7124.10, §7124.20, §7124.50, and   §7125.

The successor liability rules are generally applicable whether the successor is a corporation or another entity. Graham v. James, 144 F.3d 229, 240 (2d Cir. 1998) (traditional rule of corporate successor liability and the exceptions to the rule are generally applied regardless of whether the predecessor or successor organization was a corporation or some other form of business organization; citing 63 Am. Jur. 2d Products Liability §117 (1984)).

[2]    See, e.g., Florom v. Elliott Mfg., 867 F.2d 570 (10th Cir. 1989) (conduct of successor corporation shows that it specifically assumed the liability); Hudson Riverkeeper Fund, Inc. v. Atlantic Richfield Co., 138 F. Supp. 2d 482 (S.D. N.Y. 2001) (corporation that expressly assumed alleged polluter’s liabilities could be liable under Resource Conservation and Recovery Act even though its subsidiary was current site owner).

[3]    See, e.g., Philadelphia Elec. Co. v. Hercules, Inc., 762 F.2d 303 (3d Cir. 1985), cert. denied 474 U.S. 980, 106 S.Ct. 384 (implied assumption of liability where language of assumption agreement is broad); Harbison v. Garden Valley Outfitters, Inc., 69 Wash. App. 590 (1993) (implied assumption of liability where acquiring company agrees to assume seller’s obligations to its customers).

[4]   See, e.g., Philadelphia Electric Co. v. Hercules, Inc., 762 F.2d 303, 310 (3d Cir. 1985), cert. denied 474 U.S. 980 (successor liable for predecessor’s negligence as express assumption of liability as well as de facto merger, where: (i) the purchaser exchanged its stock as consideration for the seller's assets so that the shareholders of the seller corporation become a part of the purchaser corporation, (ii) predecessor’s management and personnel became part of successor, (iii) predecessor was required to transfer right to use its corporate name, and (iv) successor continued to operate predecessor’s plants and produced same products as predecessor); U.S. v. General Battery Corp., Inc., 423 F.3d 294 (3d Cir. 2005) (acquisition of privately-held battery manufacturer part for cash and part for stock constituted a de facto merger so that purchaser and its successor would be responsible under the Comprehensive Environmental Response, Compensation and Liability Act —Superfund law —for liability of battery manufacturer);  U.S. v. Sterling  Centrecorp Inc., 960 F. Supp. 2d 1025 (E.D. Cal. 2013) (U.S. Environmental Protection Agency and Calif. Dept. of Toxic Substances Control brought action against successor corporation for liability of predecessors who operated gold mine causing arsenic releases; district court held that the successor expressly and impliedly assumed predecessor corporation's liabilities relating to the arsenic release, and in addition, the acquisition by the successor was a de facto merger since there was continuity of business enterprise and continuity of shareholders, seller ceased its operations right after the sale and purchaser took over the operations upon the asset acquisition); Lehman Brothers. Holdings, Inc. v. Gateway Funding Diversified Mortgage. Services, L.P., 785 F.3d 96 (3d Cir. 2015) (court denied a summary judgement dismissal of action by purchaser of home mortgage loans action against seller's successor in interest under de facto merger theory; there was a continuity of enterprise with same personnel and business operations in the same location, some continuity of ownership with seller's shareholders retaining an ownership interest in the successor by reason of contractual profit sharing entitlements, possibly cessation of business by the seller company and there was assumption of ordinary business liabilities by the purchaser).See in contrastNew York v. National Service Industries, Inc., 460 F.3d 201 (2d Cir. 2006) (company that bought assets of dry cleaning business was not liable for actions of seller under de facto merger theory because there was no continuity of ownership; some evidence of continuity of ownership is necessary to find a de facto merger).

[5]    E.g., Arnold Graphics Industries, Inc. v. Independent Agent Center, Inc., 775 F.2d 38, 42 (2d Cir. 1985) (to find that a de facto merger has occurred there must be continuity of shareholders); Louisiana-Pacific Corp. v. Asarco, Inc., 909 F.2d 1260 (9th Cir. 1990) (there was no continuity of shareholders, which is a prerequisite for finding de facto merger); New York v. National Service Industries, Inc., 460 F.3d 201 (2d Cir. 2006) (cited above; some evidence of continuity of ownership is necessary to find a de facto merger). Some cases, however, have held that no one of these factors is either necessary or sufficient to establish a de facto merger. Bud Antle, Inc. v. Eastern Foods, Inc., 758 F.2d 1451, 1457-8 (11th Cir. 1985), reh’g denied 765 F.2d 154 (11th Cir. 1985) (successor not liable; based on totality of circumstances the court did not find a de facto merger).

[6]   See, e.g., Medicine Shoppe Intern., Inc. v. S.B.S. Pill Dr., Inc., 336 F.3d 801 (8th Cir. 2003) (pharmacy was successor of franchisee; for “mere continuation,” factors include: (i) common identity of officers, directors and stockholders; (ii) incorporators of successor also incorporated predecessor; (iii) business operations are identical; (iv) transferee uses same trucks, equipment, labor force, supervisors and name of the transferor; and (v) notice has been given of the transfer to employees or customers). Other cases formulate the factors as stated in the text.

See in contrastGrand Laboratories, Inc. v. Midcon Labs of Iowa, 32 F.3d 1277 (8th Cir. 1994) (successor corporation that purchased predecessor’s assets was not “mere continuation” of predecessor under Iowa law where companies had no common shareholders or directors; in determining whether one corporation is a continu­ation of another, the test is whether there is a continuation of the corporate entity of the transferor, not whether there is a continuation of the transferor’s business operation); Mickowski v. Visi-Trak Worldwide, LLC, 415 F.3d 501 (6th Cir. 2005) (a corporation is not a “mere continuation” of the corporation whose assets it has purchased for purposes of successor liability just because it continues to provide the same services (continuation of business operation), but rather the key element in the mere continuation theory is the continuation of the corporate entity such as when one corporation sells its assets to another corporation with the same people owning both corporations — common identity of stockholders, directors, and stock).

[7]    See, e.g., Dayton v. Peck, Stow and Wilcox Co. (Pexto), 739 F.2d 690, 693 (1st Cir. 1984) (purchase of manufacturing company’s assets for cash did not constitute a “de facto merger” or “mere continuation”; key element of continuation is common identity of the officers, directors and stockholders in the selling and purchasing corporations).

[8]    See, e.g., Berg Chilling Systems, Inc. v. Hull Corp., 435 F.3d 455 (3d Cir. 2006) (where one company sells all of its assets to another company, the buyer is not normally liable for the liabilities of the seller, though if circum­stances indicate that there was a “de facto merger” of the corporations or that the purchasing company was a “mere continuation” of the selling company, liability would attach to buyer; the de facto merger test is similar to the mere continuation test, except that the mere continuation test focuses on situations in which the buyer is merely a restructured or reorganized form of the seller).

[9]    See, e.g., Lumbard v. Maglia, Inc., 621 F. Supp. 1529 (S.D. N.Y. 1985) (creditor of liquidated manufacturer adequately alleged successor liability charging that various defendants had fraudulently created new entity to carry on manufacturer’s business while avoiding its debts); Raytech Corp. v. White, 54 F.3d 187, 192 (3d Cir. 1995) (transferee corporation could be liable for transferor corporation’s liabilities for asbestos exposure even though transferor’s asbestos-related assets were not part of transaction; issue was whether transfer was fraudulent attempt to avoid liability); U.S. ex rel. Bunk v. Gov’t Logistics N.V., 842 F.3d 261 (4th Cir. 2016) (successor corporation could be liable for claims against the predecessor corporation’s under False Claims Act for bid-rigging and plaintiffs had offered sufficient evidence under a fraudulent transaction theory to survive summary judgment).

[10]  Ray v. Alad Corp., 560 P.2d 3, 19 Cal.3d 22 (Cal. 1977) (non-bankruptcy asset sale; successor that continues to market a product line purchased from predecessor assumes predecessor’s liability for defective products); Lefever v. K.P. Hovnanian Enterprises, Inc., 734 A.2d 290, 292 (N.J. 1999) (asset sale in bankruptcy case; acquiring a substan­tial part of manufacturer’s assets and continuing to market good in same product line exposes purchaser to successor liability).

[11]  All section references herein are to the Internal Revenue Code of 1986, as amended (the "Code"), or the Treasury regulations promulgated thereunder, unless otherwise indicated.

[12]  The liability of a transferee that may be enforced under I.R.C.§6901 may be either at law or in equity. Regardless of whether enforcement is sought at law or in equity, there are two fundamental elements to transferee liability: (1) there must be a transfer of the taxpayer’s property to a third-party transferee, and (2) the taxpayer must be liable for the tax at the time of transfer and at the time transferee liability is asserted. Note that I.R.C. §6901 does not impose successor liability, but rather allows a collection mechanism where there is common law principles of successor liability. The Supreme Court has ruled that transferee liability is predicated on state, not Federal, law. C.I.R. v. Stern, 357 U.S. 39, 45 (1958). In general, the elements of transferee liability in equity in a given state are those found in that state’s fraudulent conveyance provisions.

[13]  See, e.g., In Matter of Motors Liquidation Company, 829 F. 3d 135 (2d. Cir. 2016) (in 2009 General Motors (Old GM) in a Chapter 11 bankruptcy sold the bulk of its assets to a new entity (New GM) free and clear of liabilities against New GM; Second Circuit held that free and clear provisions could not be enforced to negate all of the ignition switch defect claims because some of the claimants had not received adequate notice of the sale order).

[14]  920 F.2d 1323 (7th Cir. 1990). Artistic Furniture in citing a 1987 Title VII case, notes as a factor “whether the predecessor is able, or was able prior to the purchase, to provide the relief requested.” However, it does not consider this factor in discussing the successor liability for Artistic Furniture. The Artistic Furniture case does not emphasis on this provision. Most of the other cases regarding broadened successor liability do not mention this factor. Also, as noted in Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund v. Tasemkin, Inc., 59 F.3d 48 (7th Cir. 1995), availability of relief from predecessor was not dispositive in successor liability case, but rather was factor to be considered along with other facts in particular case.

[15] 414 U.S. 168 (1973).

[16] Pub. L. No. 93-406.                            

[17] 665 F. Supp. 2d 463 (D.N.J. 2009).

[18] 632 F.3d 89 (3d Cir. 2011).

[19]  The single-employer plan limit is $64,432 a year in 2017. However, the PBGC generally guarantees a much smaller amount for multiemployer pension plan benefits, depending on the type of benefit, the dollar amount of the benefit, and the date on which the benefit provision was adopted.

[20] 164 F.3d 323 (7th Cir. 1998).

[21]  Moriarty v. Svec, 164 F.3d 323 (7th Cir. 1998) (expanded ERISA successor liability; son who took over funeral home business from father was liable for unpaid contributions to multiemployer pension and welfare fund because there was continuity of operations and knowledge of liability).

[22]  Sullivan v. Running Waters Irrigation, Inc., 739 F.3d 354 (7th Cir. 2014) (where a company went out of business and the son who managed that business set up two other businesses which bought equipment from the first company and bought equipment from the first company, there would be successor liability for multiemployer withdrawal liability since the successors had notice of the claim before the acquisition and there was a substantial continuity of operation of the business).

[23]  Tsareff v. ManWeb Services, Inc., 794 F.3d 841 (7th Cir. 2015) (in sale of assets by a unionized electrical contractor (Tiernan & Hoover) to a non-union engineering company (ManWeb), multiemployer pension plan brought suit against the successor, ManWeb; court held that notice of “contingent” liability to the multiemployer plan was sufficient to be considered notice even though no withdrawal has occurred; court denied summary judgment for the successor company; court remanded to the district court to address the successor liability continuity of operations requirement, which was not addressed previously by the district court; the Seventh Circuit did not address the district court’s holding that ManWeb’s continuation of work previously done by Tiernan & Hoover should nevertheless not be imputed to Tiernan & Hoover in determining whether Tiernan & Hoover had a complete withdrawal under the Building and Construction Industry exception of ERISA §4203(b)).

[24]  Board of Trustees of Automobile Mechanics’ Local No. 701 Union and Industry Pension Fund v. Full Circle Group, Inc., 826 F.3d 994 (7th Cir. June 24, 2016) (multiemployer pension fund sued asset purchaser, Full Circle Group (FCG), for withdrawal liability incurred by the target company, Hannah Maritime Corporation (HMC), when HMC became insolvent; no plan liabilities were transferred to the buyer; the buyer’s owner (who was the son of the seller’s owner) knew before signing the purchase agreement that HMC was unionized and therefore almost certainly knew that the company would be required to contribute to a union pension fund, which should have alerted buyer to the possibility of withdrawal liability; ERISA successor liability may be imposed if there is substantial continuity in the operation of the business before and after the sale and the asset buyer had notice of the withdrawal liability; the court held that enough evidence was presented of continuity of operations to preclude summary judgment in favor of the buyer on grounds of discontinuity, and enough evidence that buyer had notice of the seller’s pension fund liability to preclude summary judgment on the ground that buyer lacked notice of possible successor liability; therefore, the district court’s summary judgment for the buyer was overturned, and the case was remanded to the district court for a trial).

[25]  Indiana Electrical Workers Pension Benefit Fund v. ManWeb Services, Inc., 884 F.3d 770 (7th Cir. 2018) (multiemployer pension ERISA withdrawal liability could apply to the asset purchaser; in determining whether there was continuity of operations between asset purchaser and seller the district court improperly focused on dilution of employer's operations in those of larger putative successor; continuity of intangible assets, workforce, business services and customers all weighed in favor of finding successor liability).

[26]  See, e.g., Hawaii Carpenters Trust Funds v. Waiola Carpenter Shop, Inc., 823 F.2d 289 (9th Cir. 1987) (in employee buyout of company there was substantial continuity between the enterprises (looking at factors such as whether there is the same basic operation, the same plant, the same workforce, the same supervisors, the same machinery and the same product), and as a successor employer the successor was requested to abide by the terms and conditions of the predecessor’s collective bargaining agreement unless it has timely bargained to an impasse; in addition, there was an assumption of the collective bargaining agreement; successor is liable for delinquent contributions to health and pension trust funds under collective bargaining agreement; also held with regard to delinquent contributions to a pension plan that the six-year statute of limitations under ERISA should be used); Trustees for Alaska Laborers-Construction Industry Health and Sec. Fund v. Ferrell, 812 F.2d 512 (9th Cir. 1987) (member of a joint venture who continued to operate business with same employees and equipment after joint venture ceased operations was a successor employer for purposes of multiemployer withdrawal liability; company is deemed a successor if it hires most of its employees from the predecessor employer’s workforce and if it conducts essentially the same business as the predecessor); Board of Trustees of Northwest Ironworkers Health & Sec. Fund v. Tanksley, NO. CV-07-367-RHW., 2010 BL 37579 (E.D. Wash. 2010) (company taken over in bankruptcy was successor employer since operated out of same premises, performed same type of work and used similar assets, and the same officers and partners served on both entities, and is obligated to collective bargaining agreement as alter ego).

[27] ERISA §4203(b) provides that a building and construction industry employer (e.g., a contractor) that ceases to contribute and the employer does not continue to perform that type of work in that jurisdiction of the collective bargaining agreement within five years will not incur withdrawal liability.

[28] Resilient Floor Covering Pension Trust Fund v. Michael’s Floor Covering, 801 F.3d 1079 (9th Cir. 2015)  (Studer’s Floor Coverings went out of business and some of its assets were sold to Michael’s Floor Covering who continued the business at the same store; Studer’s contributed to Resilient Floor Covering Pension Trust for its union employees, but that ceased when Studer’s closed; Michael’s operated at same store front with some of same machines and some of the same workers, and with many of the same clients as Studer’s; court held there could be successor liability as long as there is continuity of operations and notice of the potential liability; the construction industry exception of ERISA §4203(b) provides that for a business and construction industry employer there will be withdrawal liability only if the employer continues to perform the same type of work in the jurisdiction of the union or resumes such work within five years; broadened successor liability should apply to withdrawal liability just like previous cases have held for delinquent pension obligations; for the construction and industry exception if there is a successor there is a continuation of work and the exception should not apply; court in footnote noted that no circuit court has held contrary to Artistic Furniture; court stated that this is the first time a circuit court rules regarding withdrawal liability successor liability; contrary to the district court, the Ninth Circuit gave greater weight to the successor taking over the predecessor’s customer base and less emphasis on continuity of workforce; court remanded for determination of successorship factors).

          See on rem’dResilient Floor Covering Pension Trust Fund v. Michael's Floor Covering, Inc., No. 11-cv-05200-JSC, 2016 BL 321052(N.D. Ca. Sept. 28, 2016) (on remand, finding for successor defendant even after Third Circuit reversal because no notice of liability actually existed, even though Michael’s Floor Covering owner knew there was a union since that is insufficient to support a reasonable inference if successor’s knowledge since successor had no knowledge that the business was potentially liable for closing down the business and withholding from the pension fund even though it may have known the business contributed to a pension fund; court distinguished Full Circle Group 2016 Seventh Circuit case, discussed below, where lack of familiarity with the concept of withdrawal liability could not be an excuse since the buyer was aware of the pension fund and he had legal counsel who must have known that most pension funds are underfunded, while in Michael’s Floor Covering there was no evidence Michael’s knew of the union pension fund and he had no counsel).

26  Heavenly Hana LLC v. Hotel Union & Hotel Industry of Hawaii Pension Plan, 891 F.3d 839 (9th Cir. 2018) (a 2018 Ninth Circuit case held that there would be successor liability on a private equity group, Heavenly Hana LLC, which purchased the Ohana Hotel in Maui, Hawaii from Ohana Hotel Company, LLC for the seller's multiemployer withdrawal liability when the seller formally withdrew from a multiemployer pension plan; there was a substantial continuity of operations of the hotel; although the seller was not given specific notice of the withdrawal liability and the attorneys advised (incorrectly) that absent an express assumption of liability the buyer would not assume the withdrawal liability, there was constructive notice because buyer had previously operated a hotel that was part of that multiemployer plan, in previous acquisitions that private equity group had instructed its agents to review any potential withdrawal liability, the asset purchase agreement indicated that the seller had contributed to a multiemployer pension plan and the plan's annual funding notice showing its underfunding was publicly available on the internet).

[29] 991 F.2d 997 (2d Cir. 1993).

[30]  In Stotter, a manufacturer had obligations to a multiemployer pension plan which it had ceased to make and the union commenced arbitration pursuant to the collective bargaining agreement. In the meantime, the company had defaulted on loans and the bank foreclosed on the assets. The successor continued with the same employees at the same location. The arbitrator ruled that because the buyer was a successor employer to the seller, it had a duty to participate in the arbitration and it was jointly and severally liable for any delinquent contributions. (An arbi­trator’s award is generally upheld if arguably construing the contract and acting within the scope of its authority.) There was an adequate basis for its decision to hold the purchaser liable for the delinquent contributions in light of Artistic Furniture and other cases.

See, however, Board of Trustees of Sheet Metal Workers Local Union No. 137 Insurance, Annuity and Apprenticeship Training Funds v. Silverstein, No. 92 Civ. 8519 (S.D. N.Y. 1995), where the court held that liability for unpaid contributions to the Insurance, Welfare, Annuity and Apprenticeship Funds could not be imposed on an asset purchaser even under the Stotter and Artistic Furniture rationale, because there was not a sufficient continuity of identity, where there was no real continuity of workforce and the businesses were not identical.

[31]  See, e.g., Schilling v. Interim Healthcare of Upper Ohio Valley, Inc., 44 E.B.C. 1988, (unpublished) (S.D. Ohio 2008; which is in the 6th Circuit) (also quoting two other district cases in the Sixth Circuit; court found that under standards of the Seventh Circuit case of Upholsterer’s Int’l Union v. Artistic Furniture there would be successor liability for ERISA and therefore the successor in Schilling was liable for the unpaid medical claims under the ERISA health plan; court looked to Artistic Furniture test whether buyer had no prior knowledge of the claim and whether there is continuity at the business operations).

[32] 902 F.3d 597 (6th Cir. 2018).

[33]  Einhorn v. M.L. Ruberton Construction Co., 665 F. Supp. 2d 463 (D.N.J. 2009) (Statewide Hi-Way Safety, which employed union workers, sold its assets to M.L. Ruberton Construction Co, a non-union company, for $1.6 million; seller had been obligated to make contributions to three multiemployer pension plans under ERISA; Ruberton agreed to take union employees but did not assume the $500,000 outstanding obligation to the Philadelphia Teamsters Pension Trust and Welfare Trust; district court stated that even with continuity of operations and notice, there was no continuity of ownership; court found that absent a general common-law finding of successor liability under the four exceptions above, there is no special ERISA successor liability; this is in contrast to unfair labor practices and employment discrimination where unfairly treated workers or victims of discrimination may have no other practical recourse than to their current employer, but ERISA plans can collect delinquent contributions from seller or from proceeds of sale under constructive trust theory; thus, an ERISA fund does not need the same protections as an individual employee, contrary to Artistic Furniture; summary judgment for the buyer was granted).

The district court in Einhorn brought support from a Third Circuit case that indicated that ERISA liability would be imposed after a merger—but not necessarily after an asset sale—because the Supreme Court Case of Golden State Bottling Co. applies broadened successor liability only to unfair labor practices but not to corporate debt such as pension obligation to union. Teamsters Pension Trust Fund of Philadelphia & Vicinity v. Littlejohn, 155 F.3d 206, 209 (3d Cir. 1998) (court notes that parties argue over application of cases re development of corporate successorship in federal labor law, such as Golden State Bottling Co. where the Supreme Court held that successor liability is broader when the obligation involved is a collective bargaining agreement than when an ordinary debt is involved; in other cases Supreme Court has also stated that employer may be bound by collective bargaining agreement of predecessor as long as it had notice of obligation and continued operations of predecessor even if only assets sold and not a merger; Third Circuit states that those cases are somewhat distinguishable because they dealt with the application of labor law concepts and the terms of a collective bargaining agreement, but in this case only the transfer of a valid and ordinary debt is at issue which just happens to have its genesis in the terms of a collective bargaining agreement).

The counter-argument to the Einhorn district court ruling is that ERISA rules, while enforcing the union’s pension fund, also may lead to loss of benefits by employees if the multiemployer fund does not have enough assets to meet its obligations and the PBGC guarantees are limited (single employer limit is $60,136 a year in 2016). Also, as the Third Circuit in overturning the district court case, at Einhorn v. M.L. Ruberton Construction Co., 632 F.3d 89 (3d Cir. 2011), noted, absent an imposition of successor liability, the other employers will be forced to make up the difference to ensure that workers receive their entitled benefits.

[34]  Einhorn v. M.L. Ruberton Construction Co., 632 F.3d 89 (3d Cir. 2011) (the assets of Statewide Hi-Way Safety were sold to M.L. Ruberton Construction Company (a non-union company), and there was continuity of operations and the buyer had notice of the obligations to the Philadelphia Teamsters pension fund; the Third Circuit agreed with the Seventh Circuit Artistic Furniture case that labor law successor rules should be extended to ERISA obligations since failure to pay contributions can harm plan participants; thus the purchaser of assets would be liable for seller’s delinquent ERISA fund contributions when the buyer had notice of the liability prior to the sale and there was a continuity of operations; the case was remanded to the district court for further proceedings).

[35] See, e.g., Central Pennsylvania Teamsters Pension Fund v. Beer Distributing CompanyE.B.C. 1037 (unpublished; E.D. Pa. 2009) (the asset purchaser was liable as successor for ERISA withdrawal liability; court noted that Federal courts have expanded successor liability for ERISA; successor and predecessors are related entities through family ownership, successor assumed customers, took over facility, rehired nearly all employees, and there may have been an implied assumption of liability; case on its face supports Artistic Furniture, and contradicts the M.L. Ruberton district court case, though it can be distinguished in that in this case all the factors could, in any event, lead to a general common law exception such as a de facto merger). See also Teamsters Local 469 Pension Fund v. J.H. Reid General Contractors, 2020 E.B.C. 401, 387 (D. N.J. 2020) (district court denied summary judgement for the Pension Fund because a number of issues remained to be clarified, including (i) whether one of the defendants (Reid Recycling) was in the same controlled group as the employer that withdrew from the Pension Fund (Reid General Contractors) at the time of such withdrawal, and (ii) whether the buyer of Reid Recycling in a transaction that occurred after the Pension Fund withdrawal could be liable under expanded successor liability in accordance with the principles set forth in the M.L. Ruberton Construction Co. Third Circuit decision).

[36]   902 F.3d 597 (6th Cir. 2018).

[37] Findlay Industries, Inc., et al., 902 F.3d 597 (case deals with two issues relating to the Findlay Industries pension plan formed in 1964; first, in 1986 Findlay transferred ownership of the properties on which the plants were operating to a trust for the benefit of the family of the owner of the company, and the properties were leased back by the family trust to the company; the Sixth Circuit, overturning the district court, held that the family trust that leased properties to the company were engaged in a trade or business and could be liable for controlled group liability for any pension plan underfunding; second, in 2009 after Findlay Industries folded the company was indirectly sold to companies owned by the son of the founder, and the business in hands of the son's companies soon began running the same plants, hiring many of the same employees, and selling to the former company's largest customer; the Sixth Circuit, overturning the district court, ruled that expanded successor liability should be applied to the Findlay pension plan's termination liability under ERISA as this broadened successor liability services fundamental ERISA policies, and there was a continuation of operation).

[38]  See, e.g., Schilling v. Interim Healthcare of Upper Ohio Valley, Inc., 44 E.B.C. 1988, (S.D. Ohio 2008) (court found that under standards of the Seventh Circuit case of Artistic Furniture there would be successor liability for ERISA plans where there was continuity of business operations and prior notice of the claim, and therefore the successor was liable for the unpaid medical claims under the ERISA single-employer health plan); Moriarty v. Svec, 164 F.3d 323 (7th Cir. 1998) (broadened successor liability under Artistic Furniture applies to unpaid contributions to multiemployer pension and welfare funds); Bender v. Newell Window Furnishings, Inc., 681 F. 3d 253 (6th Cir. 2012) (upheld district court decision that the successor employer, Newell Window, was liable for retiree health benefits provided for under the collective bargaining agreement of its predecessor because there was an express assumption of liability by Newell Window of the prior collective bargaining agreement, and in addition “there seems to be no question that there was also a substantial continuation of operations at the plant by Newell Windows and its predecessors”); Hawaii Carpenters Trust Funds v. Waiola Carpenter Shop, Inc., 823 F.2d 289 (9th Cir. 1987) (court held that since there was continuity of operations (looking at factors such as whether: (i) there has been a substantial continuity of the same business operations, (ii) the new employer uses the same plant, (iii) the same or substantially the same work-force is employed, (iv) the same jobs exist under the same working conditions, (v) the same supervisors are employed, (vi) the same machinery, equipment, and methods of production are used, and (vii) and the same product is manufactured or the same service is offered), and in addition there was assumption of the collective bargaining agreement, the successor is liable for various multiemployer health and welfare fund obligations based on the collective bargaining agreement entered into with the predecessor). See also Grimm v. Healthmont, Inc., 8 Wage & Hour Cas. 2d (BNA) 504, 2002 WL 31549095 (D. Or. 2002) (court cited cases involving ERISA pension claims that buyer of assets liable for previous employer’s obligations under an ERISA plan if there is continuity of operations and notice of potential liability; court applied these broadened successor liability cases to facts in this case, which involved severance plan (which was an ERISA welfare plan)).

Seein contrastBoard of Trustees of Sheet Metal Workers Local Union No. 137 Insurance, Annuity and Apprenticeship Training Funds v. Silverstein, No. 92 Civ. 8519 (S.D. N.Y. 1995) (unpublished) (liability for unpaid contributions to the Insurance, Welfare, Annuity and Apprenticeship Funds could not be imposed on an asset purchaser even under the Stotter and Artistic Furniture rationale, because there was not a sufficient continuity of identity, as there was no real continuity of workforce (neither the majority of the seller’s employees nor the majority of the buyer’s employees were involved) and the businesses were not the same (both involved construction of signs but the specific nature of the business was different)).

Where the retiree health obligation is provided for in a collective bargaining agreement and an asset buyer assumes the collective bargaining agreement the buyer would be obligated with regard to the retiree health. See, e.g., Bish v. Aquarion Services Co., 289 F. Supp. 2d 134 (D. Conn. 2003) (buyer of assets agreed to assume collective bargaining agreement which contained retiree health obligations; court held that buyer would continue to be obligated for the retiree health obligation under the LMRA and ERISA; court noted that ERISA recognizes such liability on the successor, for example, regarding ERISA §409 fiduciary liability where case-law provides that nothing precludes a later fiduciary from assuming by contract the ERISA obligations of a former fiduciary, and case-law has also held that where a successor assumed the obligation in the collective bargaining agreement to contribute to a multiemployer plan the successor would be liable under the LMRA and ERISA; therefore court denied motion to dismiss claims). See similarly, cases cited in the beginning of the footnote.

See also Williams v. Wellman Thermal Systems Corp., 684 F. Supp. 584 (S.D. Ind. 1988) (a buyer who assumes retiree health liability cannot create in the purchase agreement a right to amend or terminate the plan that did not otherwise exist under the plan itself).

[39] 28 E.B.C. 2905 (N.D. Ill. 2002).

[40]  Brend v. Sames Corp. found that an asset buyer may have successor liability for a top-hat executive retirement contract even though specifically excluded in the asset purchase agreement, since as an ERISA plan it was subject to the continuity of operations and notice standards under Artistic Furniture for successor liability, even though there is no continuity of ownership. In this case there was notice of the liability and a genuine issue of material fact whether there was substantial continuity.

See Feinberg v. RM Acquisition, LLC, 629 F.3d 671 (7th Cir. 2011) (asset buyer was not obligated under top-hat plan because there was no continuity of operations).

[41]  In re Washington Mutual, Inc. Securities, Derivative & ERISA Litigation, BL 219740, 47 EBC 2505(W.D. Wash. 2009) (whether a company can be liable based upon an expanded ERISA inherited liability for breach of ERISA fiduciary duties is a question of first impression, and the court believes that broad successor liability should not apply in this case, stating that “while compelling in the context of issues like plan contributions, there is no reason to think the test encompasses the myriad of concerns present in the context of liability based on the duties of prudence and loyalty”).

[42]  Bish v. Aquarion Services Co., 289 F. Supp. 2d 134 (D. Conn. 2003) (as discussed above, Bish involved a seller who had promised retiree health in a collective bargaining agreement, and an asset buyer; the court held that the buyer would be subject to the retiree health obligation, since by continuing the operations the retiree health obligation would continue, and expanded ERISA successor liability is not limited only to ERISA delinquent multiemployer contributions or withdrawal liability but applies also to ERISA fiduciary duties and to promises for retiree health; the court denied the motion to dismiss claims).

[43]  Watson v. Deaconess Waltham Hospital, 298 F.3d 102, 110 (1st Cir. 2002) (noting that with regard to the suits for breach of fiduciary duty under ERISA §409( b), nothing in ERISA precludes a later fiduciary from assuming by contract the ERISA obligation of the former fiduciary); Bish v. Aquarion Services Co., 289 F. Supp. 2d 134 (D. Conn. 2003) (a seller promised retiree discussed above; court noted in dictum that ERISA fiduciary duties under ERISA §409 apply to a buyer who has assumed the plan obligations in a collective bargaining agreement).

[44] See also: EEOC v. MacMillan Bloedel Containers, 503 F.2d 1086 (6th Cir. 1974) (court held that the considerations justifying a successor doctrine to remedy unfair labor practices in Golden State Bottling Co. would also apply to unfair employment practices under Title VII, and therefore successor liability would apply where there was substantial continuity of the business operations and the successor had prior notice of the claim); Teed v. Thomas and Betts Power Solutions, 711 F.3d 763 (7th Cir. 2013) (court imposed successor liability on asset purchaser for seller's FLSA violations for unpaid overtime despite contractual language excluding the assumption of this liability.

[45] Musikiwamba v. ESSI, Inc., 760 F.2d 740 (7th Cir.1985) (broadened successor liability doctrine was applicable in the case of employment discrimination suits); E.E.O.C. v. Northern Star Hospitality, Inc., 777 F.3d 898 (7th Cir. 2015) (expanded successor liability was applied in liability for Title VII employment discrimination since successor had notice of the pending lawsuit; successor but not predecessor could provide relief after the sale or dissolution, and there was continuity of operations and work force of the predecessor and successor).

[46]  NLRA §8, 29 U.S.C.A. §158.

[47]  Fall River Dyeing & Finishing Corp. v. N.L.R.B., 482 U.S. 27, 107 S. Ct. 2225, 96 L. Ed. 2d 22 (1987) (a company that was liquidating sold its remaining assets and rehired a number of employees; the company refused to bargain with the union, claiming that it was not a successor; the Supreme Court held that where a majority of the company’s employees have worked for the predecessor, and there was a substantial continuity—which depends on whether the business is substantially the same, the employees were doing the same jobs, and the business was producing the same products—the new employer has a duty to bargain in good faith with the union but is not bound to the specific provisions of the existing union agreement).

[48]  See, N. L. R. B. v. Burns International Security Services, Inc., 406 U.S. 272, 284, 291, 92 S. Ct. 1571, 1580, 1584 (1972) (even where successors held to be legal successor for purposes of bargaining, this alone is insufficient to bind the successor to the substantive provisions of the predecessor employer’s collective bargaining agreement with the union); Howard Johnson Co. v. Detroit Local Joint Executive Board, 417 U.S. 249, 258 n. 3, 94 S.Ct. 2236, 2241 n.3 (1974) (not bound to substantive provisions even if it is a legal successor for purposes of bargaining, even in the presence of a clause binding successor and assigns to the terms of that agreement).

[49]  See, e.g., Teamsters Pension Trust Fund of Phila. v. Littlejohn, 155 F.3d 206 (3d Cir. 1998) (discussed above; liability for delinquent pension contribution after a merger).

[50]  See, e.g., In re Challenge Stamping and Porcelain, 719 F.2d 146 (6th Cir. 1983) (corporation that acquired 100% of stock of sponsoring corporation one month after it filed for bankruptcy was not considered part controlled group for pension plan’s underfunding because purpose of ERISA termination liability is to avoid employer abuse of plan termination insurance and Congress did not intend to extend the liability to corporations that made contingent purchases of stock that had no practical effect; purchase of stock during bankruptcy for  one dollardoes not make party part of controlled group since stock is worthless; therefore, a purchase from the bankruptcy estate does not by itself bring successor liability); PBGC v. Ouimet Corp., 711 F.2d 1085 (1st Cir. 1983), cert. denied 464 U.S. 961, 104 S. Ct. 393 (1983) (where subsidiary went bankrupt and terminated underfunded plan after acquisition by controlled group that included another bankrupt subsidiary, termination liability was allocated only to the solvent group members, and not bankrupt corporations’ estates, since applying the bankrupt’s assets to PBGC’s liability would have reduced assets available to their creditors and inequitably benefited group members; court noted that ERISA provides a lien on 30% of the net worth, not asset value and a bankrupt corporation has negative net worth). See also Brighton, How Free is Free and Clear, 21 SEP Am. Bankr. Inst. J. 1 (Sept. 2002).

[51]  Chicago Truck Drivers, Helpers & Warehouse Workers Union Pension Fund v. Tasemkin, Inc., 59 F.3d 48 (7th Cir. 1995) (Seventh Circuit held that claim by multiemployer pension fund against successor entity for ERISA withdrawal liability and delinquent pension contributions to the union’s pension should not have been dismissed; court notes that it was not absolutely precluded from finding successor liability against the successor where there was substantial continuity of operations and notice, despite the fact that company had just emerged from bank­ruptcy; successor liability after bankruptcy does not subvert bankruptcy rules since the property has already emerged from bankruptcy).

[52]  In Plumbers, Pipefitters and Apprentices Local Union No 112 v. Mauro’s Plumbing, Heating and Fire Suppression, Inc., 84 F. Supp. 2d, 344 (N.D. N.Y. 2000) the Northern District of New York held that where plumbing company that signed collective bargaining agreement ceased operations and owners established a non-union company (Northeast Mechanical) three months later at the same location, the successor was liable for the predecessor’s multiemployer welfare contributions as the alter ego of the first company since there was continuity of ownership and management, and employment of many of the same employees, similarity of business purposes, overlapping operations, use of office and plumbing equipment and sharing of customers. (Because it found alter-ego status, court found it unnecessary to also examine successor liability status).

[53]  See, e.g., Solar v. Pension Benefit Guaranty Corporation, 504 F. Supp. 1116 (S.D. N.Y. 1981), aff’d, 665 F.2d 28 (2d Cir. 1981) (holding that a transaction intended to avoid liability should be disregarded for Title IV liability purposes). See also In Re Consolidated Litigation Concerning International Harvester’s Disposition of Wisconsin Steel, 681 F. Supp. 512 (N.D.Ill. 1988) (International Harvester) (predecessor that sold business with principal purpose of evading liability and delegated pension obligations to purchaser that at time lacked reasonable chance of meeting this obligation was held liable to the PBGC for the unfunded benefit payments owed).

[54]  One of the transactions that persuaded Congress to enact ERISA §4069 was the sale by International Harvester of a financially crippled subsidiary, Wisconsin Steel, which sponsored grossly underfunded pension plans, to a financially weak buyer. See International Harvester, above. The PBGC brought suit to preclude International Harvester from avoiding liability for the terminated plans by reason of that transaction and the court eventually upheld the PBGC’s claims. Nevertheless, while that case was pending, Congress enacted ERISA §4069 because it felt that such a provision was necessary to deter “abusive schemes” to avoid liability “which can lead to complex, costly litigation.” H. Rep. No. 99-241, Pt. 2, 99th Cong., 1st Sess., reprinted in 1986 U.S. Code Cong. & Admin. News 685, 713 (House Report).

ERISA §4069 “incorporates court decisions under current law by adding explicit statutory language to make clear that transactions, a principal purpose of which is to evade liability under the statute, are to be ignored in deter­mining liability.” House Report. It is arguable that if an entity was not in the controlled group of the plan before the transaction, it could not be held liable under §4069 since §4069 only operates to ignore the transaction.

[55] ERISA §4212(c).

[56]  See Central States Pension Fund v. Georgia-Pacific LLC, 639 F.3d 757 (7th Cir. 2011) (ERISA §4204 contract will avoid withdrawal liability and sale of one division was not culmination of withdrawal by stages from multiemployer plan; withdrawal was solely because of employer’s sale of its last division in which buyer assumed employer’s liability for contributions in the ERISA  §4204 transaction).

[57] ERISA §4204(a)(2).

[58] ERISA §4204(a)(3)(A).

[59] ERISA §4204(b).

[60]  Artistic Carton Co. v. Paper Industry Union—Management Pension Fund, 971 F.2d 1346 (7th Cir. 1992) (arbitrator did not err in finding that a multiemployer pension plan properly assessed withdrawal liability on a successor employer based on the predecessor employer’s contributions since ERISA §4204 does not necessarily imply that there will never be withdrawal liability for asset buyers who do not sign a ERISA §4204 contract, and the multiemployer plan documents specifically provided that withdrawal liability would include all service of the employees including service with the predecessor employer).

Tuesday, September 14, 2021

Rev. Proc. 2021-30 (EPCRS Update)

Rev. Proc. 2021-30 (EPCRS Update)

Charles C. Shulman, Esq.

Rev. Proc. 2021-30 updates the IRS Employee Plans Compliance Resolution System (EPCRS) Program, with the following changes to the EPCRS program: 

(i)  the end of the self-correction period for significant failures is extended by an extra year; 

(ii) an anonymous VCP with a free VCP pre-submission conference procedure is provided instead of John Doe applications; 

(iii) the plan sponsor can correct an operational failure under SCP by retroactive plan amendment if the amendment will result in an increase of a benefit, right or feature (BRF) is allowed even if such BRF is not available to all eligible employees, provided the benefiting group satisfies the IRC's nondiscrimination rules; 

(iv) it extends by three years the sunset of the safe harbor correction method for employee elective deferral failures associated with missed elective deferrals for participants who have an automatic contribution feature to December 31, 2023; 

(v) it expands the de minimis exception from the requirement to seek recovery from overpayment recipients for small overpayments with such amount being increased from $100 to $250; 

(vi) it allows entering into payment agreements with participants who were overpaid; and

(vii) it includes two new benefit overpayment correction methods for defined benefit plans that encourage employers to avoid seeking recoupment of benefit overpayments made to participants which are based on a plan’s funding status by either not requiring correction if the specified funding levels are met (the funding exception contribution method) or by limiting the amount to be recouped under certain circumstances (the contribution credit correction method).

If you have any questions, please contact Charles at or at 201-357-0577

Monday, August 23, 2021

Missing Plan Participants – Recent Guidance

Missing Plan Participants – Recent Guidance


Charles C. Shulman, Esq.


March 31, 2021
(Revised Aug. 2021)


A common problem in plan administration is finding missing participants. Sometimes these lost participants simply cannot be located. Other times they can be located but they do not accept distribution packages with respect to their benefits.  


Field Assistance Bulletins. 

DOL Field Assistance Bulletin 2004-02 stated that certain methods of finding participants be used because they have a high degree of success and are relatively inexpensive. These methods are as follows: (i) certified mail, (ii) plan records of participants in other plans maintained by the employer, for example, a health plan, (iii) using a designated beneficiary to locate a participant, (iv) using the IRS or Social Security Administration letter-forwarding service.  However, both these letter forwarding programs were discontinued (the IRS program in 2012 and the SSA program in 2014).

DOL Field Assistance Bulletin 2014-1 sets forth the DOL’s current views on the proper fiduciary steps to follow in connection with locating missing participants. It prescribes the search steps that must be used in locating the lost participant. Routine methods of regular mail or email will suffice most of the time. However more may be necessary if there is no response or the fiduciary believes it does not have a current address. Certified mail should be used to find out if the participant can be located. FAB 2014-1 notes that the DOL model participant notice for plan termination can be used. A search of the employer records including plan records for other plans maintained by the employer such as health plans should be done. Asking designated beneficiaries of the participant for the location of the participant should be done. Use of free internet search tools such as Internet search engines, public record databases, obituaries and social media should be utilized. Possible additional searches include internet search tools that charge a fee, commercial locator services, credit reporting agencies and investigative databases. If a participant still cannot be located, the preferred method of distributing the account from the plan is to establish an IRA rollover account following the general procedure for distribution of cash-out amounts between $1,000 and $5,000. This amount would be rolled over to an IRA which would be invested in an investment designed to preserve principal and provide a reasonable rate of return. There is a strong preference for rollover distributions because if funds are otherwise distributed, there will need to be 20% mandatory withholding.  Another alternative is to furnish the funds to the state unclaimed property fund. Many states maintain funds with web internet access sites listing the names of individuals who are due funds from one source or another. Some state funds accept plan distributions on behalf of missing participants. Although the Department of Labor in Opinion 94-41A takes the position that state funds may not be automatically escheated to the state, the fiduciary may reach the conclusion that this is the proper course of action where it is necessary to distribute all funds in order to complete the termination of the plan.


DOL Best-Practices Memo. A DOL “best practices” memo – “Missing Participants – Best Practices for Pension Plans,” (January 12, 2021),, outlines how fiduciaries of defined benefit plans and defined contribution plans can handle missing participants. The Best Practices memo outlined red flags that the DOL looks for as indicators of missing participant issues, including: a significant number of participants who are nonresponsive, a significant number of terminated vested participants reaching normal retirement age who have not started receiving benefits, incomplete contact information and census data and absence of sound policies for handling returned mail and uncashed checks. The 2021 Best Practices memo also gives examples of best practices, including:

  1. Maintaining accurate census information for the plan’s participant population (including contacting participants and beneficiaries on a periodic basis to confirm or update their contact information, including contact information change requests in plan communications, flagging undeliverable mail/email and uncashed checks, requesting updates to contact information for beneficiaries, regularly auditing census information, and in the case of a change in record keepers or plan sponsor, addressing the transfer of appropriate plan participant and beneficiary information and relevant employment records);
  1. Implementing effective communication strategies (including using plain language and offering non-English assistance, encouraging employees to notify the plan of any change in contact information and encouraging information contact through plan websites and toll-free numbers, building steps into plan enrollment for new employees and exit procedures for separating employees to confirm or update contact information, communicating options about consolidating accounts from prior employer plans and marking correspondence with the original plan or sponsor name where this has changed after participants separated); 
  1. Conducting missing participant searches (including checking plan and employer records for participant, beneficiary and emergency contact information, checking with designated plan beneficiaries and emergency contacts for updated contact information, using free online search engines, public record databases, obituaries, and social media to locate individuals, using a commercial locator service or credit-reporting agency to locate individuals, mailing certified mail or mail with tracking features to the last known mailing address, attempting contact via email addresses telephones and social media, searching death Indexes, contacting colleagues of missing participants or by publishing a list of missing participants on the company’s intranet, reaching out to a union’s local offices and registering and publicizing missing participants on public and private pension registries with privacy and cyber security protections); and 
  1. Documenting procedures and actions (including putting applicable plan policies in writing, documenting key decisions and the steps taken to implement the policies, ensuring third-party record keepers are performing agreed upon services, and working with the record keeper to identify and correct shortcomings in the plan’s recordkeeping and communication practices).

PBGC Missing Participant Program for Terminating Defined Benefit and Defined Contribution Plans. Under the Pension Protection Act of 2006, the single-employer missing participant program required to be maintained by the PBGC is extended to terminating single-employer and multiemployer pension plans and defined contribution plans, and defined benefit pension plans that are not covered by the PBGC because they have no more than 25 active participants. ERISA § 4050(d). In December 2017, the PBGC finalized regulations first proposed in 2016 that expand its existing Missing Participants Program to cover terminated 401(k) and other defined contribution plans and defined benefit plans that are not currently covered by the program. PBGC Reg. §§ 4050.101 to 4050.407, 82 Fed. Reg. 60800 (Dec. 22, 2017). Under ERISA § 4050 as amended by PPA 2006, the PBGC is required to operate a missing participants program for single-employer plans and multiemployer plans covered by Title IV of ERISA. It also may maintain an optional program for defined benefit plans not covered by Title IV of ERISA and for defined contribution plans. The regulations establish missing participant programs for terminating multiemployer defined benefit plans covered by Title IV (PBGC Reg. §§ 4050.401 to 4050.407), terminating professional service employer defined benefit plans not covered by Title IV (PBGC Reg. §§ 4050.301 to 4050.307), and for terminating defined contribution plans (PBGC Reg. §§ 4050.201 to 4050.207). The regulations also make changes in the existing Missing Participants Program including providing for (i) fees to be charged for plans to participate in the Missing Participants Program; (ii) a requirement to treat as missing certain nonresponsive distributees with de minimis benefits subject to mandatory cash-outs under the Plan’s terms; (iii) stricter requirements for diligence searches, including sponsor and related plan records, free web search methods and commercial locater services; (iv) fewer benefit categories and fewer sets of actuarial assumptions for determining the amount to transfer to the PBGC; and (v) changes in the rules for paying benefits to missing participants and their beneficiaries. The program is mandatory for PBGC for single-employer plans and multiemployer plans subject to Title IV and insured by the PBGC. The insured defined benefit plans are required to either (i) transfer the benefits of missing participants to the PBGC, or (ii) purchase annuities and provide the PBGC with information about the annuity provider. PBGC Reg. §§ 4050.103 and 4050.403. Participation in the Missing Participants Program for defined contribution plans and defined benefit plans not covered by PBGC insurance is voluntary.

A defined contribution plan program that participates in PBGC’s Missing Participants Program must either (i) transfer accounts of missing participants to the PBGC, or (ii) send the PBGC information about where the accounts of its missing participants were transferred. PBGC Reg. §§ 4050.203 and 4050.303. As part of the Missing Participants Program, the PBGC is creating a database that may be used to provide information about missing participants and their benefits. It would permit the public to search the database to determine whether it contained information about benefits available to a specific participant, but it would be designed in a way that would protect individuals’ privacy. A one-time fee, $35 initially, is charged for transferring a participant’s defined benefit or defined contribution benefit to the PBGC. Amounts of $250 or less could be transferred at no fee. The regulations are effective January 22, 2018, and apply to single-employer plans terminating after 2017 and to the closeout of multiemployer plans after 2017.         

DOL Field Assistance Bulletin 2021-01, “Temporary Enforcement Policy Regarding the Participation of Terminating Defined Contribution Plans in the PBGC Missing Participants Program” (January 12, 2021) provides that the DOL will not pursue violations under ERISA §404(a) against plan fiduciaries of a terminating defined contribution plan (or a qualified termination administrator of an abandoned plan) in connection with the transfer of missing participants’ account balances to the PBGC in accordance with the PBGC’s missing participant regulations (PBGC Reg. §4050.101; discussed above), rather than to an IRA, certain bank accounts or the state unclaimed property fund per DOL Reg. §2550.404a-3, if the plan fiduciary complies with the guidance in this Field Assistance Bulletin and has generally acted in accordance with a good faith reasonable interpretation of ERISA §404. (This does not preclude the DOL from pursuing violations under ERISA for a failure to diligently search for participants prior to the transfer of their account balances to the PBGC.) The plan fiduciary who participates in the PBGC Defined Contribution Missing Participants Program must otherwise comply with the requirements of the safe harbor regulation at DOL Reg. §2550.404a-3 for distributions from terminated plans. Notices to participants must state that their account balances are being transferred to the PBGC’s Defined Contribution Missing Participants Program, and include the PBGC’s website and contact telephone number. A plan fiduciary can also transfer to the PBGC the account balances of participants who elected a lump-sum distribution of the entire account under the terms of the plan if that distribution was paid by check and the check remains uncashed after the cash-by date prescribed on the check (or 45 days if longer). A plan fiduciary may pay the PBGC charge from the accounts transferred to the PBGC Defined Contribution Missing Participants Program unless the plan prohibits such payment from the plan.


If you have any questions regarding the above, contact Charles C. Shulman, Esq. at or at 201-357-0577.


Sunday, July 11, 2021

American Rescue Plan Act of 2021 – Summary of Benefit Provisions


March 15, 2021

American Rescue Plan Act of 2021 – Summary of Benefit Provisions

Charles C. Shulman, Esq.

 A.  Introduction  The American Rescue Plan Act of 2021 ("ARPA"), H.R. 1319, P.L. 117-2, signed March 11, 2021, which provides COVID-19 relief to governments, businesses and individuals, also provides relief to plan sponsors and participants of employee benefit plans, including: (i) actions to address underfunded multiemployer pension plans; (ii) extended amortization for single employer pension plans; (iii) a 100% subsidy of COBRA premiums for a six month period beginning April 1, 2021; (iv) an increase in the dependent care assistance program limit; and (v) broadening of the definition of covered employee for purposes of Internal Revenue Code § 162(m).

B.   Multiemployer Plan Provisions

      1. Delay of Designation of Multiemployer Plan Funding Status in 2020 and 2021 – Under the American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9701(a)(1) if a multiemployer defined benefit plan elects, the funding status as endangered, critical, or critical and declining status under IRC § 432 for plan years beginning on or after March 1, 2020 and, if elected, the next succeeding plan year, may generally remain the same as in the plan year beginning on or after March 1, 2019.  ARPA § 9701(a)(2) provides that where such an election is made for a plan that was in endangered or critical status, the plan is not required to update its funding improvement or rehabilitation plan and schedules under IRC § 432(c)(6) and 432(e)(3)(B) until the plan year following the plan year(s) elected.  The election (which must be made in accordance with guidance from the Secretary of the Treasury) must be included in the annual certification or made within 30 days after the annual certification.  ARPA § 9701(c)(1).  Such an election may be revoked only with the consent of the Secretary of the Treasury.  Notice must be given to participants that such an election has been made.  ARPA § 9701(c)(2).  These provisions are effective on the date of enactment, i.e., March 11, 2021.  These provisions and some of ones below are similar to those made 2008 financial crisis legislation.

      2.  Temporary Extension of Funding Improvement and Rehabilitation Periods for Multiemployer Pension Plans in Critical and Endangered Status in 2020 or 2021  The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9702(a) provides that if a multiemployer defined benefit plan that is in endangered or critical status for a plan year beginning in 2020 or 2021, the plan sponsor may elect to extend the plan's otherwise applicable 10 year funding improvement period for endangered plans under IRC § 432(c) or 10 year rehabilitation period for critical plans under IRC § 432(e) by five years, from 10 to 15 years. If a multiemployer defined benefit pension plan is in seriously endangered status for a plan year beginning in 2020 or 2021, the plan sponsor may elect to extend the plan's otherwise applicable funding improvement period by five years from 15 to 20 years.  The election is to be made at such time, and in such manner and form, as the Secretary of the Treasury may prescribe in consultation with the Secretary of Labor.  ARPA § 9702(b)(1).  This provision is effective for plan years beginning on or after January 1, 2020.  ARPA § 9702(c). 

      3.  Easing of Funding Standard Account Rules for Multiemployer Plans – The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021)  § 9703 adds new IRC § 431(b)(8)(F) allowing an underfunded multiemployer pension plan that meets the solvency test under IRC § 431(b)(8)(C), to use either one or both of two special funding relief rules which apply generally for the first two plan years ending on or after March 1, 2020:

    First – Amortization of net investment losses – The plan sponsor may make changes to the plan's funding standard account to treat the portion of its experience loss attributable to the net investment losses or to any COVID-19-related losses (in the two plan years ending on or after March 1, 2020) be amortized in equal annual installments over a 30-year period instead of a 15-year period.  IRC § 431(b)(8)(F)(i) (modifying § 431(b)(8)(A)(I)(i)); ARPA § 9703.

    Second – Expanded smoothing period and asset valuation corridor – A multiemployer plan may change its asset valuation method in a manner that spreads the difference between the expected returns and actual returns for the first two plan years ending on or after March 1, 2020.  IRC § 431(b)(8)(F)(i) (modifying § 431(b)(8)(B)(I)(i)); ARPA § 9703.  In addition, the plan's asset value must be adjusted under the valuation method being used so the value of plan assets is not less than 80% of the current fair market value of the assets and not more than 130% of the current fair market value (rather than 120%). IRC § 431(b)(8)(F)(i) (modifying § 431(b)(8)(b)(I)(i)); ARPA § 9703.

Under IRC § 431(b)(8)(C), the "solvency test" is met only if the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period, taking into account the special funding rule changes. 

      4.   Temporary Special Financial Assistance for Financially Troubled Multiemployer Pension Plans – Under new ERISA § 4262 added the American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9704 the PBGC will provide financial assistance (without any requirement of repayment) to "eligible multiemployer plans" upon request by the plan sponsor.

            a.   Eligible Multiemployer Plan – A plan is an "eligible multiemployer plan" if: (i) it is in critical and declining status in any plan year beginning in 2020 through 2022; (ii) a suspension of benefits for the plan under the Multiemployer Pension Reform Act of 2014 has been approved as of March 11, 2021; (iii) in any plan year beginning in 2020 through 2022, the plan is in critical status, has a modified funded percentage of less than 40%, and has a ratio of active to inactive participants which is less than two to three; OR (iv) the plan became insolvent after December 16, 2014, has remained insolvent, and has not been terminated as of March 11, 2021.  IRC § 4262(b) added ARPA § 9704.

            b.   Application for special financial assistance – PBGC regulations/guidance will provide the requirements for special financial assistance applications. The PBGC may also provide in regulations or guidance that during a period no longer than the first two years following the date of enactment applications may not be filed unless (i) the plan is insolvent or is likely to become insolvent, (ii) the plan is projected by the PBGC to have a present value of financial assistance payments that exceeds $1 Billion if the financial assistance is not provided, (iii) the plan has implemented benefit suspensions as of the date of enactment or (iv) the PBGC determines it appropriate based on other similar circumstances.  New IRC § 4262(c).  Any application by a plan for special financial assistance must be submitted no later than December 31, 2025, and any revised application must be submitted no later than December 31, 2026.  .  IRC § 4262(f).

            c.   Actuarial assumptions – For purposes of eligibility for the special financial assistance, the PBGC will accept assumptions incorporated in the plan's determination that it is in critical status or critical and declining status for certifications completed before January 1, 2021, unless such assumptions are clearly erroneous. For certifications of plan status completed after December 31, 2020, a plan determines whether it is in critical or critical and declining status for purposes of eligibility for special financial assistance by using the assumptions that the plan used in its most recently completed certification of plan status before January 1, 2021, unless such assumptions are unreasonable.  IRC § 4262(e) added ARPA § 9704.

            d.   Amount and manner of payment of special financial assistance – Special financial assistance is issued by the PBGC in lump sum within one year to an eligible multiemployer plan is effective no later than 1 year after a plan's special financial assistance application is approved.  New IRC § 4262(i).

            e.   Reinstatement of suspended benefits – An eligible multiemployer plan that receives special financial assistance must reinstate any benefits that were suspended.  New IRC § 4262(k).

            f.    Required disclosure – An eligible multiemployer plan receiving special financial assistance must provide each participating employer and labor organization employer, if applicable, an estimate of the employer's share of the plan's unfunded vested benefits as of the end of each plan year ending after the date of enactment of the proposal.  This disclosure must include a statement that, due to the special financial assistance, the plan will have sufficient resources to pay 100% of the plan's benefit obligations until the last day of the plan year ending in 2051.

            g.   Appropriations – ARPA establishes an eighth fund for special financial assistance to multiemployer plans and to pay for PBGC's necessary administrative and operating expenses relating to such special financial assistance.  ERISA § 4005(i)(1) added ARPA § 9704(a).

      5.   PBGC premium rate increase to $52 for multiemployer plans in 2031 subject to future COLA adjustments  – For plan years beginning after December 31, 2030, the flat rate PBGC premium for multiemployer plans will increase to $52 per participant and will be subject to cost-of-living adjustments for plan years beginning in a calendar year after 2031 in multiples of $1, up from the flat rate of $31 per participant currently in effect.  American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9704(c) 4262(c) adding ERISA §§ 4006(a)(3)(A)(viii) & 4006(a)(3)(N).

C.   Single-Employer Plan Changes

      1.   Extended Amortization of Funding Shortfalls for Single-Employer Plans – When a single-employer plan has a funding shortfall, IRC § 430(c)(2) provides that the plan must establish a shortfall amortization base to be paid over a 7-year amortization period.  The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021)  amends IRC § 430 to provide that, with respect to plan years beginning on or after January 1, 2020 (or, if so elected, on or after January 1, 2019) the shortfall amortization bases for all plan years preceding the first plan year beginning on or after January 1, 2020 (or January 1, 2019, if so elected), and all shortfall amortization installments determined with respect to such bases, are reduced to zero. IRC § 430(c)(8) added by ARPA § 9705.  In addition, the funding shortfalls, as redetermined for plan years beginning on or after January 1, 2020 (or, if elected, on or after January 1, 2019) are determined over a 15-year period, rather than a 7-year period. IRC § 430(c)(8) added by ARPA § 9705.  This is effective for plan years beginning on or after January 1, 2019.

      2.   Extension of Pension Funding Stabilization Percentages for Single Employer Plans – In connection with the 25-year pension interest rate smoothing enacted in 2012 and later legislation to alleviate high pension funding obligations, the interest rate used must be within 10% of the 25-year interest rate averages.  Also, the smoothed interest rates were scheduled to begin phasing out in 2021.  The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9706 extends the pension funding stabilization percentages through 2029.  The specified percentage range for a plan year is: (i) 90 percent to 110% for 2012 through 2019, (ii) 95% to 105% for 2020 through 2025, (iii) 90% to 110% for 2026, (iv) 85% to 115% for 2027, (v) 80% to 120% for 2028, (vi) 75% to 125% for 2029, and (vii) 70% to 130% for 2030 or later. IRC § 430(h)(2)(C)(iv)(II) as amended by ARPA § 9706(a). A 5% floor is established on the 25-year interest rate averages. IRC § 430(h)(2)(C)(iv)(I) as amended by ARPA § 9706(b). This is effective for plan years beginning on or after January 1, 2020.

D.   ARPA Health Plan Changes in 2021

      1.   COBRA 100% Premium Subsidy Between 4/1/2021 and 9/30/2021 – The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9501 provides that for the period between April 1, 2021 and September 30, 2021, "assistance-eligible individuals" (as defined below) may receive a 100% subsidy (full premium payment) for any premium required for COBRA continuation coverage under a group health plan.  ARPA § 9501(a)(1).  These rules are effective March 11, 2021.

An "assistance-eligible individual" is any COBRA qualified beneficiary who, with respect to a period of coverage during the period beginning on April 1, 2021 and ending on September 30, 2021 (1) is eligible for COBRA continuation coverage due to termination of the employee (other than by reason of such employee's gross misconduct or for voluntarily quitting) or reduction of hours of employment, pursuant to IRC § 4980B(f)(3)(B), and (2) elects such coverage. ARPA § 9501(a)(3).

The above COBRA premium assistance is excludible from the gross income of the individual under IRC § 139l added by ARPA.  COBRA continuation coverage that qualifies for premium assistance also includes continuation coverage offered by a State program that provides comparable continuation coverage. ARPA Committee Report JCX-2-21.

A group health plan may provide for special plan enrollment options (pursuant to a Section 125 cafeteria plan) to assistance-eligible individuals allowing them to change coverage options under the plan in conjunction with electing COBRA continuation coverage within 90 days of the date of notice of the enrollment option.  ARPA § 9501(a)(1)(B).  Eligibility for coverage under another group health plan does not terminate eligibility for premium assistance if the other group health plan coverage consists only of excepted benefits under IRC § 9382(c)(2), is a qualified small employer HRA or is a flexible spending arrangement.  ARPA § 9501(a)(1)(B)(ii)(IV).

Under ARPA there is a special COBRA election period (for at least 60 days after notice is given) for a qualified beneficiary who either (1) does not have an election of COBRA continuation coverage in effect on April 1, 2021 but who would be an assistance-eligible individual were such an election in effect, or (2) elected COBRA continuation coverage and discontinued from such coverage before April 1, 2021.

Under ARPA the employer to whom continuation coverage premiums are payable is allowed a credit for each calendar quarter against Medicare tax due by the employer under IRC § 3111(b) in an amount equal to the premiums not paid by assistance-eligible individuals for COBRA coverage by reason of the subsidy during such quarter.  New IRC § 6432 added by ARPA § 9501(b)(1).

The COBRA notice that a plan administrator is required to provide with respect to a qualifying event during the period of April 1, 2021 to September 30, 2021 must contain certain additional information regarding the right to the premium assistance under ARPA.  ARPA § 9501(a)(5).

IRS Notice 2021-31 provides Q&As regarding the ARPA COBRA premium assistance provisions.

      2.   Temporary Increase for 2021 of Dependent Care Assistance Program Limit  The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9631 expands the child and dependent care tax credit available to taxpayers for tax year 2021.  Also, IRC § 129(a)(2)(D) as amended by ARPA § 9632(a) expands the annual limit for dependent care FSAs for 2021 only from $5,000 to $10,500 and from $2,500 to $5,250 for a married person filing separately.  This is effective for tax years beginning in 2021.  Any plan amendment must be made by the last day of the plan year in which the plan amendment.  ARPA § 9632(c).  Note that the nondiscrimination testing rules of IRC § 129(d) for dependent care assistant programs must still be met.

      3.   COVID-Related Paid Sick Leave and Family Leave Credit  The Families First Coronavirus Response Act of 2020 required certain employers to provide qualified paid sick leave and family leave to employees who are unable to work due to COVID-19.  The costs were offset in part by refundable tax credits for qualified leave payments from April 1, 2020 through December 31, 2020, and this was extended to March 31, 2021 by the Consolidated Appropriations Act, 2021.  The American Rescue Plan Act of 2021 ("ARPA") § 9641 extends the emergency paid sick time and paid family leave credits from April 1, 2021 through September 30, 2021.

      4.   Extension of Refundable Premium Tax Credit for 2021 and 2022 – A refundable premium tax credit is available on a sliding-scale basis for individuals and families with household income between 100% and 400% of the federal poverty line who are enrolled in an Exchange-purchased qualified health plan, and who are not eligible for other qualifying coverage.  The American Rescue Plan Act of 2021 § 9661 increases the premium tax credit for 2021 and 2021 and also makes the premium tax credit available to taxpayers whose income exceed 400% of the federal poverty line.  ARPA § 9662 provides that taxpayers do not have to repay certain excess advance premium tax credit payments for 2020.  ARPA § 9663 provides for increased premium tax credit for taxpayers receiving unemployment compensation in 2021.

E.   Expanded Class of Covered Employees under IRC § 162(m)

      IRC §162(m) disallows a deduction by a publicly-held corporation for compensation in excess of $1 million per year paid to a "covered employee." "Covered employee," as amended by the Tax Cuts and Jobs Act of 2018, is an individual serving as CEO, CFO and the next three highest compensated officers who are required to be reported under the executive compensation disclosure rules of the Securities Exchange Act of 1934.  IRC §162(m)(3).  In addition, as amended in 2018, if an employee is a covered employee for any prior tax year, the employee's compensation remains subject to the deduction limit in subsequent tax years, even if the employee is no longer a covered employee. Id.

The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9708 provides that for taxable years beginning after December 31, 2026, "covered employee" will also includes five other employees who are among the five highest compensated employees (in addition to the top five executives described above). IRC §162(m)(3)(C) as amended by ARPA § 9708.  However, for these other five highest compensated employees, they will not be considered covered employees for taxable years when they are no longer among the top five highest compensated employees. IRC §162(m)(3)(D) as amended by ARPA § 9708.  

Charles C. Shulman, Esq.