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Top-hat plan participants could not recover benefits under ERISA §502 from a company that bought all of the assets of the plan sponsor out of which benefits might have been paid, but did not assume any of the plan sponsor's liabilities under the plan, according to the U.S. Court of Appeals in Chicago (CA-7) in Feinberg v. RM Acquisition, LLC.
Plan sponsor sells assets
After a company declared bankruptcy, a final decree in the bankruptcy proceedings was issued that left the company's top-hat plan "unimpaired," meaning that the debt related to the plan had not been modified or discharged in the bankruptcy proceedings. About four years later, the company sold all of its assets to an acquisition company. The contract of sale provided that the buyer would acquire the selling company's assets and some of the selling company's liabilities. The liabilities did not include those related to the top-hat plan. After the sale, the seller had no assets and, thus, could not continue paying plan benefits.
The plan participants, former executives of the seller, sued the buyer to recover benefits. The district court granted the buyer's motion to dismiss the suit for failure to state a claim.
Liability of buyer
The participants contended that the buyer was liable for the benefits promised by the plan because the buyer was the "de facto plan administrator." The appellate court noted that, although the plan named the plan sponsor and any successor to the plan sponsor from a merger, consolidation, or purchase of the plan sponsor's assets as administrator of the plan, the successor would have to consent. The buyer did not consent in any way, according to the court.
The court explained that a buyer can purchase all of the assets of a company and explicitly decline to assume any of the liabilities. That declination will be valid unless the transaction is a fraud against the creditors, or the selling and purchasing companies are not meaningfully separate. The court found that the plan participants did not make a case for successor liability under the conventional common law principles of successorship liability. The buyer did not assume the top-hat plan's liabilities. In addition, it did not appear that the buyer connived with the seller to deprive the plan participants of their benefits or that the buyer was just a continuation of the seller under another name.
The court observed that plaintiffs have been allowed to sue a purchaser of a violator's business over a violation of federal rights even if there was a true sale if certain conditions are met. The court explained, however, that this expansion of common law cannot help the plan participants without a showing that there were no major changes in the operation of the seller's business after the sale to the buyer. The court found that the plan participants had not attempted to make such a showing. Thus, the participants' claim against the buyer under ERISA §502 for nonpayment of ERISA benefits failed. The appellate court affirmed the district court's decision.
For more information, visit http://www.wolterskluwerlb.com/rbcs.
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