Unfunded Union Pension Liability Advice

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December 23, 2025

by a searcher from The University of Chicago - Booth School of Business in Dallas, TX, USA

Has anyone made an acquisition where the company had an unfunded union pension liability and how was that handled at close/purchase agreement (in an asset deal)? Obviously, it represents a form of indebtedness / off balance sheet liability, but I am curious to know how people actually handled this: decrease in purchase price, some form of escrow account, seller pays off the liability directly to union, etc. Also, I already have a legal team, so I am not looking for a legal service provider -- would just like to learn how people approached this.
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Reply by a searcher
from The University of North Carolina at Chapel Hill in Austin, TX, USA
Take the tax-affected underfunded amount (because the contributions are tax deductible) and then treat that as a debt like item, thereby reducing the purchase equity value
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Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
I am not a CPA, nor attorney nor tax advisor. I have seen thousands of financials over 35 years. It is my understanding that unfunded pension liability means the company has a "defined benefit" pension plan. Is that true? 401 k replaced them many decades ago. I do not recall running into defined benefit pension plan for small companies. So, in your situation, is this unfunded 401 k plan or a true unfunded defined benefit pension plan? Regardless, Price excludes such liability. Seller should pay it off pre-closing. I would also suggest do not continue the pension program even after it is fully funded. Switch to 401 k.
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