Employee-benefit issues can get complex in corporate transactions.

• Author: TOADVINE, J. RENE
• Position: Transactions such as - Brief Article

Every business owner knows there's nothing simple about employee-benefits plans. The issues get even more complex when two businesses engage in a corporate transaction, such as an asset or stock sale or a merger. This article examines, in a general way, some of the employee-benefit issues that arise when buyer and seller come together.

It is important to recognize that the business owners viewpoint on the issues differs depending on whether the business owner is the buyer or the seller. A buyer is concerned with getting assurances from the seller that all of the seller's employee-benefit plans comply with the maze of tax and Employee Retirement Income Security Act -- ERISA -- laws that govern employee-benefit plans. The buyer wants to make sure it will not inherit unwanted employee-benefit-plan liabilities. Also, the buyer may have to determine how to move employees from the seller's business into its benefit structure without compromising the seller's or the buyer's overall benefit-plan structure.

On the other hand, a seller in a corporate transaction wants to limit the information it must disclose regarding its employee-benefit plans and arrangements. The seller will want to avoid having to make broad representations about its plans. Typically, the seller is concerned with protecting its employee-benefit plans and their underlying assets for the benefit of its employees and ceasing to be liable for any costs after the transaction closes.

Asset sale or stock sale?

Another crucial set of issues that arise during the negotiating process depend on whether the corporate transaction is structured as an asset purchase or a stock purchase. If the transaction is an asset purchase, generally no employee-benefit-plan liabilities of the seller will be transferred to the buyer, unless, under the asset purchase agreement, the buyer agrees to assume certain liabilities.

However, the buyer must beware. Even without expressly agreeing to assume certain liabilities, the buyer may nevertheless be subject to transferee liability for Consolidated Omnibus Budget. Reconciliation Act -- COBRA -- group-health-continuation coverage, and, in extremely rare cases, possibly be liable for the seller's delinquent contributions to, and withdrawal liability from, a multiemployer pension plan. If the corporate transaction is structured as a stock purchase, the employee-benefit-plan liabilities of the seller will transfer automatically to the buyer, unless the stock...