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Assumption of Pension Liabilities

Rick Bigelow's Profile

I am assisting on a prospective acquisition that requires the assumption of the sellers existing pension liabilities.  Does anyone have experience in what to look for and/or ask during diligence?  I would rather not take the liabilities but it is a requirement of the seller.


Topic Expert
Barrett Peterson
Title: Manager, Accounting Standards,
Company: TTX
(Manager, Accounting Standards,, TTX) |

First, also determine the trust assets and the amount. Next determine the benefit formula and actuarial assumptions. Get a coy of their ERISA filings inclding statutory "funded status". If you have to take a large unfunded liability, consider abandoning the deal unless price is adjusted. Note that you will generally have the right to freeze or terminate the acquired plan, unless you give that up in negotiations. Have an actuary and a knowledgeable financial professional, as well as your attorney.

Topic Expert
J.D. Floyd
Title: Owner, CFO
Company: CFO Outsourcing Solutions, Inc.
(Owner, CFO, CFO Outsourcing Solutions, Inc.) |

I would echo Barrett's response, plus add that you get copies of all the Pension Plan audit reports. If those have not been prepared, then make it a part of the Due Diligence and/or Closing process that those be prepared. In all the deals that I have been a part of that had DB Pensions, I was lucky that they where fully funded, but if it had not been the case, I would have required that all contributions need to bring the fund(s) to full funding would be a requirement at the escrow table; that the required funds to fully fund be withheld at the escrow table and remitted to Trustee.

Topic Expert
Linda Wright
Title: Consultant
Company: Wright Consulting
(Consultant, Wright Consulting) |

Following Barrett's advice, be sure to know the unfunded liability (ideally get three years of notices, assumed Expected Return on Assets and performance relative to the EROA), whether there have been any notices to recipients regarding Pension Benefit Guaranty Corp triggers (normally a cautionary sign), the actuarial firm and reputation; and the handler of records, notices etc.


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