In Feinberg v. RM Acquisition LLC, No. 10-1890 (7th Cir. 2011), the plaintiff was a participant in a top-hat plan (the “Plan”) maintained by his employer. The Plan was unfunded, and designated the employer as plan administrator. The employer sold all of its assets out of which the Plan’s benefits might have been paid, and distributed the proceeds of the sale, presumably to its shareholders and creditors. The employer thus became a shell. Under the contract of sale, the buyer of those assets did not expressly assume any of the employer’s liabilities under the Plan. The plaintiff sued the buyer under ERISA for his retirement benefits under the Plan.
The plaintiff argued that the buyer is liable for the retirement benefits as the “de facto plan administrator.” In this case, the plan administrator could be liable for the benefits, because the employer had become a shell and no other payer was available. The Plan designated, as plan administrator, not only the employer, but also any successor to the employer by reason of merger, consolidation, the purchase of all or substantially all of the employer’s assets, or otherwise. However, the Court ruled that, for the designation to apply to the buyer in this case, the buyer would have to consent to this designation, as by taking over the plan without rejecting the successorship clause. Here, the buyer never consented, implicitly or otherwise.
Also, the purchase of the employer’s assets does not make the buyer responsible for the employer’s liabilities. Here, buyer declined to assume these liabilities under the contract of sale. The buyer is not a mere continuation of the employer under another name. Generally, when a federal right is involved-here the plaintiff’s right to retirement benefits under ERISA- the courts will impose liability on the buyer, even in a bonafide sale, so long as two conditions are met: (1) the buyer had notice of the liability before the purchase and (2) there is substantial continuity in the operation of the business before and after the sale. Prong (2) is normally met if no major changes are made in that operation. Here, the plaintiff failed to show that no major changes had occurred.
The Court concluded that plaintiff’s claim against the buyer failed, so that the buyer was not liable for the retirement benefits payable under the Plan.