Assumed pension obligations after a business transfer

P/OPINION 76-94

3(2)
September 28, 1976

Dear          :

This is in response to your recent letter concerning the
Employee Retirement Income Security Act of 1974 (ERISA). We
regret that we were unable to reply to your inquiry earlier.

Your letter relates to an employee pension benefit program that
was established and maintained by the [Predecessor] Company,
Inc., now known as [Predecessor]. Although not having any
written or other contractual obligation to do so, [Predecessor]
followed a consistent practice of paying pension benefits to
both hourly and salaried employees funded on a pay-as-you-go
basis. [Predecessor] disposed of its cotton compressing and
warehousing assets and business in 1969, and these were
subsequently acquired under a net-lease arrangement by (Deleted)
Corporation, now known as the (Company).

At the time of the disposal by [Predecessor] it had more than
one thousand active hourly and salaried employees as well as a
large number of retired employees receiving pension benefits.
Under the net-lease instrument the Company agreed to continue
to pay retirement benefits to [Predecessor] retirees and to
commence payments of such benefits to the former employees
of [Predecessor] as they became eligible. Effective December 31,
1974, it was agreed between the Company and [Predecessor] that,
except for former [Predecessor] employees retiring during 1975,
all benefits were frozen and vested as of that date.

It is your position that the [Predecessor] program was effectively
terminated on December 31, 1974, and the Company is no longer
maintaining a pension plan, but is merely liquidating a fixed
contractual liability that has been imposed on it by the net-lease
agreement. You request a ruling to this effect

We have concluded that as the Company has assumed the pension
commitments of [Predecessor], it is an employer for the purposes
of the ERISA, and that the contractual obligation to pay benefits
to the former [Predecessor] employees is an “employee pension
benefit plan” within the meaning of section 3(2) of the Act.
Additionally, although the earning of further pension credits
has been terminated, coverage for the plan under the ERISA
continues to be presumed until the plan no longer has the
purpose of providing covered benefits.

Sincerely,