A non-United States entity seeking to acquire a United States entity should be aware that the acquisition may expose the non-US entity to any pension plan termination and withdrawal liabilities of the US target entity in perhaps unexpected ways. A recent Federal District Court case demonstrates circumstances in which a non-US entity that acquires a US company with an underfunded pension plan can subject itself to personal jurisdiction in the US and become directly liable for 100% of the pension underfunding when the plan is terminated. These concerns are heightened in the current economic environment, and in particular where a solvent non-US parent company’s US subsidiary files for bankruptcy protection with unsatisfied pension liabilities, and the US pension regulator or the plan is eager to find solvent entities to satisfy its claims.
Under Title IV of ERISA, when an underfunded employer-sponsored defined benefit pension plan is terminated, or a contributing employer ceases (or significantly reduces) contributions to a multiemployer plan covering collectively bargained employees in a total or partial withdrawal, the employer and each member of its “controlled group” on the date of such termination or withdrawal become jointly and severally liable to the Pension Benefit Guaranty Corporation (“PBGC”) or the multiemployer plan for, among other things, the amount of any unfunded benefit liabilities or withdrawal liability, respectively. For an organization to be a member of the employer’s controlled group, two factors must be present: (1) the organization must be under “common control” with the employer (generally, 80% or greater common ownership by vote or value, going up and down the chain of ownership, including parent-subsidiary and brother-sister affiliations), and (2) the organization must be a “trade or business.”
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