Retirement Plans - M&A

  • Code §410(b)(6)(C) re M&A transition rule for coverage testing. See Rev. Rul. 2004-11, as discusses in this article. 
  • See Separate Line of Business Rules

2016.07.22  Merger Agreement Propels Litigation After Post-Closing Benefit Reductions.   In merger and purchase agreements that include post-closing benefit plan commitments, purchasers should consider including a “Halliburton provision” in order to prevent claims that those commitments have created de facto plan amendments that participants may enforce.  In Hunter v. Berkshire-Hathaway, the 5th Circuit applied the reasoning of its 2006 Halliburton decision to a merger agreement executed in 2000, and concluded that pension plan participants  could pursue “their claims against Berkshire because Berkshire caused Acme to amend the Pension Plan and 401(k) Plan in direct violation of Section 5.7 of the merger agreement. The court explained:

  • The facts here are comparable to those in Halliburton. Acme can make any changes to the ERISA plans, but Berkshire can "not cause the Company [Acme] to . . . (ii) reduce any benefit accruals . . . [or] (iii) reduce the employer contribution. . . ." . . .  Additionally, the restrictive provisos here, like the provision in Halliburton, impose no time limit for how long Berkshire is prevented from causing Acme to reduce certain benefits.

Overall, the Hunter case provides a useful reminder that, in their acquisition agreements, buyers should consider including a Halliburton provision if they are making post-closing commitments to employees of the acquired company.  This is the case (due to the Halliburton decision) even if the agreement provides that there are no third party beneficiaries.

2014 April 03  Analogous Authority - Successor Liability under Fair Labor Standards Act 
Law360 reports that "[t]he Third Circuit held in a precedential decision Thursday that a federal common law standard applies for successor employer liability for alleged Fair Labor Standards Act violations in a case involving alleged overtime violations by a mortgage lender and its successor company." The case is Thompson v Real Estate Mortgage Network.

2013.Oct.22   "No Ambiguity" about No Assumption of Pension Plan (WD MI)
In an asset purchase under Bankruptcy Code §363, the "free and clear sale" did not result in the buyer's assumption of plans not listed in the purchase agreement, per the decision in International Union vs. Mahle Engine dismissing claims under ERISA and the Labor Management Relations Act (based on provisions in a collective bargaining agreement), because the sale order expressly provided for no successor liability except for plans being expressly assumed.  

2013.Sept.16   Retirees Lose Challenge to Spin-off of Pension Plan .
A Texas district court has dismissed, claims by former Verizon employees that a spin-off of their pension plan violated ERISA because iplan fiduciaries breached their ERISA duties through . . . continued at M&A Benefits. “the involuntary transfer of retirees from Verizon’s allegedly more financially secure pension plans to Idearc’s allegedly less-secure plans.” See Murphy v. Verizon, ND Texas.

2013.June.19   PBGC to be More Aggressive re Pension Terminations
Although it is well established that the federal common law of successor liability has potential application to a seller’s multiemployer and nonqualified plan liabilities, there is no record of the PBGC acting to reverse its longstanding policy, expressed in a 1978 PBGC Opinion (78-10), to the effect that arms’ length asset sales for fair market value do not trigger successor liability for underfunded ERISA plans. Nevertheless, the PBGC has recently announced more aggressive enforcement activity (see "PBGC bares fangs").   For further information, see the Harvard Governance Blog titled "PBGC Initiates Pension Plan Termination in Leveraged Acquisition."