Purchaser Need Not Duplicate Shut-Down Benefits When Mirroring Seller's Pension Plans

In Shaver v. Siemens Corporation, 2012 U.S. App. LEXIS 4081 (3d Cir. Feb. 29, 2012), the U.S. Court of Appeals for the Third Circuit issued a precedent-setting opinion addressing the complex relationship between ERISA's anti-cutback rules and common corporate transactions. This decision is important for employers considering acquiring another employer's assets and workforce because it addressed the employee benefits issues related to the common practice of providing transition benefits under the seller's pension plan after the closing date of an asset purchase.

Background on the Asset Purchase Agreement and Transition Period

On November 17, 1997, Westinghouse Electric Corporation ("Westinghouse") and Siemens Corporation ("Siemens") entered into an Asset Purchase Agreement ("APA") to sell a business unit, but the transaction did not close for another nine months – on August 19, 1998, which was not an unusual delay in a corporate transaction of this size. Under the APA, Siemens was obligated to – and did – hire all affected Westinghouse employees who, on the closing date, were actively at work, on vacation, or on short-term disability. The APA required Siemens to establish a "substantially identical" pension plan for the affected employees and to provide compensation and benefits substantially comparable "in the aggregate" to the Westinghouse compensation and benefits.

The affected employees were covered by a defined benefit plan, which provided for a shutdown benefit if an employee was terminated "because of . . . location closedown" if the employee satisfied age and service requirements, but had not yet reached normal retirement age. The plan defined "Employer" as any Westinghouse affiliate, but did not include a purchaser. The shutdown benefit excluded an employee who "is offered continued employment by . . . a successor employer" and included a sunset provision that no benefit would be provided to an employee who terminated after August 31, 1998.

Even though the closing date for the APA was August 19, 1998, the APA was amended prior to closing to provide that, for the purpose of pensions and benefits, the closing date would be deemed to be September 1, 1998, and that Westinghouse would give the affected employees benefit and service credit for the period between the actual closing and the deemed closing. Siemens agreed to reimburse Westinghouse for the actuarial value of a shutdown benefit that might be provided to an employee terminated by Siemens without cause during the transition period.

In accordance with the APA, Siemens adopted substantially identical pension plans to those sponsored by Westinghouse, effective as of September 1, 1998, providing for future benefit accruals. Because the shutdown benefit had a sunset provision that expired on August 31, 1998, the Siemens pension plans did not contain a shutdown benefit. In 1999, Siemens closed a number of acquired facilities and terminated the employment of 227 of the acquired employees. Over 200 of them signed releases in accordance with Siemens' severance plan.

The Siemens pension plans denied claims for shutdown benefits because those plans did not provide any such benefits. The plaintiffs then sued Siemens and the Siemens pension plans for violations of ERISA. The...

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