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This post uses hypothetical scenarios for illustrative purposes only. It does not describe any actual client, transaction, or representation, and is not legal advice.

Here is a Florida deal pattern that surfaces more often than anyone budgets for. A mid-market mechanical contractor or a regional freight company goes under LOI at a clean multiple. Diligence runs six weeks on customer contracts, equipment titles, and the workers’ comp mod. Then somebody in the benefits workstream finally reads the collective bargaining agreement and finds an obligation to contribute to a multiemployer pension plan. Counsel requests an estimate of withdrawal liability under ERISA § 4221(e). The number comes back weeks later, and it is not a rounding error. On a distressed or thinly capitalized target it can exceed the entire equity value of the business.

This is the liability that most often kills a signed Florida deal in the last three weeks. It is not obscure — it is just late-diagnosed, because it lives in a plan document nobody in the deal team owns.

Withdrawal liability is a purchase price problem, not a benefits problem

Under the Multiemployer Pension Plan Amendments Act, an employer that permanently ceases to have an obligation to contribute to a multiemployer plan — or that permanently ceases covered operations — has “withdrawn,” and owes the plan its allocable share of the plan’s unfunded vested benefits. The obligation runs to the employer and to every trade or business under common control with it. That controlled-group reach is what turns a modest operating company’s pension exposure into a claim against a founder’s other holdings.

The critical structural point for M&A is that a straight asset sale is a withdrawal. The seller stops contributing on the closing date because the seller no longer employs anyone covered by the agreement. Nothing about the asset-versus-stock election helps here. If anything, the asset structure is what triggers the event.

Two features make this liability behave unlike other diligence items. First, the amount is calculated by the plan, not negotiated by the parties, and the employer’s remedy is arbitration on a compressed schedule with “pay first, dispute later” mechanics under § 4219. Second, the number moves with the plan’s funded status, which the parties do not control and cannot forecast from the target’s own books. A seller who priced the deal off EBITDA has no visibility into a liability driven by another entity’s actuarial assumptions.

Section 4204 is the statutory escape hatch, and it has three conditions

ERISA § 4204, codified at 29 U.S.C. § 1384, provides that a bona fide arm’s-length asset sale to an unrelated buyer is not a withdrawal — if the parties satisfy three conditions and the buyer steps into the contribution obligation.

First, the buyer must have an obligation to contribute to the plan for substantially the same number of contribution base units for which the seller had an obligation. This is not a formality. If the buyer intends to shrink the union workforce after closing, the § 4204 path may not fit, and the parties should model that before signing rather than after.

Second, the buyer must post a bond or fund an escrow for a period of five plan years following the sale. The amount is the greater of the seller’s average required annual contribution for the three plan years preceding the sale year, or the seller’s required annual contribution for the plan year immediately preceding the sale. That is a real cash or credit commitment, and it belongs in the buyer’s financing model at the LOI stage, not in the week-of-closing scramble. Surety capacity for these bonds is not unlimited, and a buyer with a thin balance sheet may find the bond harder to place than the acquisition debt.

Third — and this is the term sellers most often miss — the purchase agreement itself must provide that the seller is secondarily liable if the buyer withdraws from the plan during those five plan years and fails to pay its own withdrawal liability. The seller does not walk away clean at closing. The seller signs up for a five-year contingent guarantee of a stranger’s pension obligation, capped at what the seller’s own withdrawal liability would have been.

There is a further trap for sellers who intend to wind up. If substantially all of the seller’s assets are distributed, or the seller liquidates, before the end of that five-year period, the seller must itself post a bond or escrow equal to the present value of the withdrawal liability it would have had but for § 4204. A founder who plans to dissolve the selling entity and distribute proceeds in year two has to solve for that in the distribution plan. The PBGC’s regulations at 29 C.F.R. Part 4204 also allow variances and exemptions from the bond and escrow requirements in defined circumstances, and in the right fact pattern a request to the plan or to the PBGC is worth the timeline it costs. set out the criteria and the notice mechanics.

The construction-industry exception is why many Florida contractor deals never trigger anything

Florida’s union density is low relative to the industrial Midwest, but it is concentrated exactly where mid-market M&A is active: mechanical and electrical contracting, elevator service, sheet metal, ironwork, and freight. For building-and-construction-industry employers, ERISA § 4203(b) narrows the definition of complete withdrawal considerably.

A construction-industry employer withdraws only if it ceases to have an obligation to contribute and either continues to perform work in the jurisdiction of the collective bargaining agreement of the type for which contributions were required, or resumes that work within five years without renewing the contribution obligation. In plain terms, a contractor that genuinely exits the covered work in that geography does not withdraw at all. A contractor that sells its assets and keeps performing the same trade in the same jurisdiction non-union does.

That distinction should drive structure. If the buyer intends to run the acquired crews non-union in the same Florida counties, the § 4203(b) exception evaporates and the deal is squarely in § 4204 territory. If the seller’s controlled group includes a second entity performing the same trade in the same jurisdiction — a common structure in family-owned Florida contracting groups — the exception may fail even where the sold business itself goes quiet. The five-year lookback means the plan can, and does, keep evaluating the controlled group’s operations well after the closing dinner.

The Seventh Circuit closed a calculation argument sellers used to make

Employers that used § 4204 for one divestiture and later withdrew from the same plan for unrelated reasons had argued that contributions attributable to the divested assets should be carved out of the later withdrawal liability calculation. In SuperValu Inc. v. United Food and Commercial Workers Unions and Employers Midwest Pension Fund, decided in 2025, the Seventh Circuit held otherwise: § 4204 does not call for excluding contributions associated with divested assets from the withdrawal liability computation on a subsequent withdrawal.

The practical lesson for a seller running a multi-step exit — selling one division now and the rest in two years — is that § 4204 defers the event for the divested piece but does not shrink the base for the eventual withdrawal. A seller modeling a staged sale should price the terminal withdrawal liability off the full contribution history, not off the residual business.

What the purchase agreement should actually say

Four drafting moves do most of the work. The first is a specific, non-capped, non-basket indemnity for pre-closing withdrawal liability, separated from the general indemnification architecture. Withdrawal liability does not behave like a rep breach — it can be assessed years after closing and it is not the kind of exposure that a tipping basket and a 10% cap were designed for.

The second is an ERISA representation that names the plans specifically, attaches the most recent § 4221(e) estimate, and reps to the absence of a mass withdrawal, plan termination, or critical-and-declining certification. A generic “no ERISA liabilities” rep is close to useless here.

The third is the § 4204 secondary-liability language itself, if the parties are using that path, drafted to track the statute rather than paraphrase it. Plans review these clauses and reject sloppy ones.

The fourth is a closing condition tied to receipt of a current estimate from each plan, with a walk right or price adjustment above a stated threshold. Requesting the estimate takes real time — plans commonly take months — which is why the request should go out in the first week of diligence, alongside the COBRA and plan-termination workstream and not after it.

Where this lands on a Florida deal timeline

The sequencing problem is the whole problem. A Florida contractor or carrier deal typically runs sixty to ninety days from LOI to closing. A withdrawal liability estimate can take longer than that to arrive. A § 4204 bond takes underwriting time. A PBGC variance request adds more. None of that fits into the last two weeks.

So the diligence request goes out early, before the quality of earnings is finished and well before the disclosure schedules circulate. The trigger for that request is simple: any union-represented workforce, any CBA in the data room, any line item on the trial balance that looks like a plan contribution. In practice that means freight and logistics targets and licensed trade contractors get the question by default.

Structuring around this cannot guarantee that a plan will agree with the parties’ characterization, and the arbitration mechanics under § 4221 mean disputes get expensive before they get resolved. But a deal that identifies the plan in week one, requests the estimate in week two, and prices the exposure into the LOI is in a fundamentally different position than one that finds the contribution line the week before signing.

If you are buying or selling a Florida business with a union-represented workforce and a multiemployer pension obligation, feel free to reach out to our firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.