Ouch!: ERISA Successor Liability Despite Contractual Exclusions

Federal courts continue to adopt the use of criteria much more expansive than the traditional common law criteria to determine if a purchaser of assets is responsible for the seller’s ERISA liabilities’ despite language in the Asset Purchase Agreement (“APA”) excluding the liability. The courts are saying that there are certain types of ERISA liabilities which will follow the assets no matter what the parties may say contractually to exclude or limit the seller succeeding to the ERISA liability.

The criteria used by the federal courts which have adopted this expanded view of when an obligation of the seller becomes the obligation of the buyer despite provisions in the APA to the contrary has but two elements: (1) notice of the liability (actual or constructive) and (2) continuity of the operations (how closely are the assets purchased used by the buyer in the same way they were used by the seller). Common ownership is not part of the criteria.

Under this expanded definition of when successor liability attaches, the buyer cannot escape the liability by disclaimers or exclusionary provisions in the APA. The courts say that once the buyer is on notice of the liability, the most the buyer can do is negotiate a lower purchase price and/or require the seller to provide an indemnity. Needless to say, neither of these options to mitigate or offset the ERISA liability are necessarily available or practical in a given transaction. Courts generally refuse to enforce contractual indemnity provisions for violations of employment protective statutes, such as Title VII and the FLSA, on public policy grounds. Equal Rights Center v. Arch Stone, Smith Trust v. Niles Bolten Associates, Inc., 602 F.3d 597 (4th Cir. 2010); Gibbs-Alfano v. Burton, 281 F.3d 12, 21-23 (2nd Cir. 2002). The Third and Sixth Circuits have enforced ERISA withdrawal liability indemnification contractual provisions. See, Pittsburgh Mack Sales & Services v. Int’l. Union of Operating Engineers Local Union No. 66, 580 F.3d 185 (3rd Cir. 2009); Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 89, 2012 WL 880601 (6th Cir., March 16, 2012).

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New Fee Disclosure Regs for Pension and 401(k) Plans: What Should Employers Do?

In February of 2012, the DOL published long-awaited final regs under Section 408(b)(2) of ERISA which took effect July 1, 2012. These require the disclosure of fees that service providers charge to pension and 401(k) plans. In light of this ruling, employers shuold:

  • Review their pension and 401(k) plan documents, SPDs and TPA agreements to determine if the company is identified as the plan administrator or named fiduciary.
  • Obtain fiduciary liability insurance coverage if the company, committee or individuals are identified as a fiduciary or plan administrator.
  • Contact the existing TPA to determine its position on compliance with the new regs. If the existing TPA is willing to provide support for compliance with the new regs, enter into a service agreement with the TPA which spells out what responsibilities of the TPA are and the fees for same. Consider having these fees paid from the company funds rather than the plan assets, at least for the initial compliance requirements.
  • Put in place written procedures and policies which spell out how and by whom the fiduciary obligations of the new regs will be fulfilled.
  • Don’t permit the company or yourself to be a sitting duck for inventive plaintiffs class action lawyers which are sure to have an interest in the new fee regs.


Posted by Carl H. Hellerstedt, Jr.
Mr. Hellerstedt is Counsel with Spilman Thomas & Battle, PLLC. His primary areas of practice are labor and employment and ERISA law.

Carl H. Hellerstedt, Jr.