Successor Liability Theory Rescues Pension Guaranty Fund
The Pension Benefit Guaranty Corporation (PBGC) was created to insure uninterrupted payment of benefits under terminated private-sector pension and health plans subject to ERISA. It is funded by insurance premiums paid by sponsoring companies and from assets obtained from terminated plans and recovered from underfunded plan sponsors in bankruptcy. The plan's sponsor and “trades or businesses” related to the sponsor through common ownership are jointly and severally liable for those liabilities. PBGC sued to collect $30 million in underfunded pension liabilities from Findlay Industries after it was shuttered. PBGC also looked to recover from a trust started by Findlay’s founder and his son under a successor liability theory. The son was a 45 percent shareholder and former CEO of Findlay who had purchased its assets and started his own companies using the same land, hiring many of the same employees, and selling to its largest customer. The Sixth Circuit held, as a matter of first impression but in line with other jurisdictions, an entity that owns land and leases it to an entity under common control should be considered a “trade or business” under ERISA. The court refused to allow clever financial maneuvers to leave PBGC holding the bag to pay millions in pension liabilities.