Section 4204 is usually narrated from the purchaser's chair — the covenants assumed, the bond posted. The seller's chair deserves its own narration, because the seller's board is frequently told the election "eliminates" withdrawal liability, and that is not what the statute says. The statute defers it, conditions it, and secures it. For five plan years the seller lives with a contingent exposure whose triggers sit inside another company's business decisions — and managing that tail is sell-side work the purchase agreement either does or fails to do.
What the Statute Actually Provides
Under § 4204(a)(1)(C), the sale contract must provide that if the purchaser withdraws from the plan during the first five plan years after the sale and fails to pay its withdrawal liability, the seller is secondarily liable for the amount it would have owed the plan but for the election. The exposure is thus double-conditioned — the purchaser must both withdraw and default — and the bond stands in front of it: the plan collects from the instrument up to the penal sum before the seller's secondary liability absorbs the remainder. Note the asymmetry that drives sell-side diligence: the bond is sized to the seller's contribution history, while the secondary liability is sized to the seller's allocable unfunded vested benefits under § 4211 — and for underfunded plans the second number dwarfs the first. The bond is a buffer, not a ceiling.
The Disappearing-Seller Rule
The statute anticipates the seller that takes the sale proceeds and dissolves. Where the seller distributes substantially all of its assets or liquidates before the five plan years run, § 4204 requires the seller to post its own bond or escrow securing the secondary liability. Sell-side counsel planning a post-closing wind-down — the overwhelmingly common plan for an asset seller — must calendar this obligation into the dissolution timeline, and the instrument is one this desk writes alongside the purchaser's bond, frequently within the same indemnity architecture where the parties' interests permit. A liquidating seller that skips the requirement has broken the election it paid a discount to obtain.
Sell-Side Diligence Runs on Two Tracks
The purchaser. For five plan years the seller's contingent exposure tracks the purchaser's fidelity to the union work — which makes the purchaser's operating intentions, labor history, and post-closing capital structure legitimate sell-side diligence, not buyer's private business. A purchaser whose model quietly winds down the covered operations is manufacturing the seller's secondary liability. The surety. The bond is the seller's buffer, so its quality is the seller's concern: § 412 qualification, ERISA depth, claims posture, and the instrument's form all determine whether the buffer performs when the double-trigger fires. Sellers' counsel are always welcome on this desk's calls for exactly that reason — the instrument protects their client too.
Covenants Worth Negotiating Into the APA
The statute sets the floor; the contract can build on it. Recurring sell-side protections: information covenants obligating the purchaser to notify the seller of contribution delinquencies, fund correspondence, or any event of withdrawal during the period — so the seller learns of trouble from the purchaser rather than from the fund's demand letter; maintenance covenants requiring the purchaser to keep the bond in force and evidence renewal annually; indemnification from the purchaser for any secondary liability actually absorbed, converting the statutory exposure into a contract claim against the party that caused it; and, in stronger negotiating positions, escrowed holdback or parent support behind that indemnity. None of these binds the fund — the plan's statutory rights run regardless — but each disciplines the five-year relationship the statute creates and the parties must live inside.
Expiry and Release
At the close of the fifth plan year without a purchaser withdrawal-and-default, the secondary liability extinguishes and the bond is released. Paper the ending affirmatively: confirmation to the fund, release of the instrument, closure notices to the parties, and — for the liquidated seller's successors — documentation that the tail has run. Instruments left to linger generate exactly one thing: a diligence question in the seller's shareholders' next transaction, answered at legal rates. This desk administers the release as standard service on every § 4204 program it writes.
Authorities: ERISA § 4204, 29 U.S.C. § 1384; ERISA § 4211; 29 CFR Part 4204. Practitioner commentary, not legal advice.