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CCH® PENSION — 06/27/11

Employer's asset sale not culmination of multi-year scheme to evade liability

An employer owed no withdrawal liability because its sale of one division to a buyer able to make all pension contributions was not the culmination of a multi-year scheme to evade liability by withdrawing in stages from the plan, the U.S. Court of Appeals in Chicago (CA-7) has ruled in Central States, Southeast and Southwest Pension Fund v. Georgia-Pacific, LLC.

Sale of assets

Under ERISA 4204, an employer owes no withdrawal liability if its termination of contributions is "solely because" of a qualifying sale of corporate assets. To qualify, the buyer of the assets must agree to assume liability for plan contributions and to post a bond to ensure payment.

The employer argued that its 2004 sale of its building products division met this standard. The pension fund disagreed. It viewed the 2004 sale as the last in a series of transactions that began in 1994-1995, when the employer outsourced certain tasks and laid off workers. It continued in 1997 when the employer closed some facilities and laid off more workers. Thus, according to the fund, the employer's complete withdrawal was not "solely because" of the 2004 sale.

Transaction at issue

The appellate court agreed with the employer (as had an arbitrator and the district court). The appellate court rejected the fund's interpretation of the phrase "solely because." The best definition of that phrase concentrates on the transaction at issue, separating the role of the sale from the role of everything else that went before it. Under this definition, the court explained, the 2004 sale to a buyer that continued the pension fund contributions and posted the appropriate bond did not give rise to withdrawal liability.

The court conceded that if an employer uses a series of partial withdrawals, plus a final sale, in an effort to avoid withdrawal liability, those multiple transactions will be consolidated and viewed as one withdrawal. In this instance, however, the arbitrator reviewed the facts and determined that the events cited by the fund occurred independently of one another and in response to distinct economic conditions.

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For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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