Sixth Circuit expands PBGCs ability to recover underfunded pension liabilities
Single-employer pension plans are less commonplace these days, but remain a reality for many companies to deal with large, accrued balances from pensions implemented decades earlier. If a company is already financially unstable, the prospect of paying for these pension liabilities for years to can drive a company toward insolvency or possible bankruptcy.
Affiliates and successors of financially troubled businesses are also at risk for these unpaid pension obligations. As detailed in a Sixth Circuit opinion issued earlier this fall, creative asset restructuring efforts and long-term financial planning may not be enough for affiliates or successors to escape legacy pension liabilities.
The issues raised in the appeal of the case, Pension Benefit Guaranty Corporation v. Findlay Industries, Inc. (902 F.3d 597, 6th Cir. 2018) involved two sets of parties related to the business failure of Findlay Industries, the plan sponsor under a single-employer pension plan. Those parties were a trust that obtained property from Findlay’s founder but then leased it right back to Findlay and the companies that eventually acquired all of Findlay’s assets after it went under (the Successors). Neither the Trust nor the Successors expressly assumed—or believed they had to assume—Findlay’s pension liabilities.
But the Pension Benefit Guaranty Corporation had a different thought. In a decision that the court called a "common sense answer," the Sixth Circuit reversed a lower court decision, and found that the Trust was indeed a "trade or business" under common control of the plan sponsor, thus deeming Findlay and the Trust be treated as one employer for liability purposes under the Employee Retirement Income Security Act of 1974, or ERISA. Moreover, the Sixth Circuit found that the Successors could be held to answer for Findlay’s massively underfunded pension responsibilities under a federal common-law doctrine of successor liability as means to promote fundamental ERISA policies.
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