The most valuable sentence in this entire practice area sits in a regulation, not the statute. 29 CFR § 4204.11: the purchaser's bond or escrow, and the sale-contract secondary-liability provision, are not required if the parties inform the plan in writing of their intention that the sale be covered by § 4204 and demonstrate to the plan's satisfaction that at least one of the regulation's criteria is met. Three criteria exist. This desk runs all three, free, on every file — and this page shows the arithmetic we run.
Test One: De Minimis — § 4204.12
The bond is excused where its amount would not exceed the lesser of $250,000 or two percent of the average total annual contributions made by all employers to the plan for the three most recent plan years ending before the date of determination. The logic is materiality from the fund's side of the table: a bond that is a rounding error against the plan's contribution base secures nothing worth administering. Note the two-sided structure — the dollar cap disqualifies larger transactions outright regardless of fund size, while the two-percent prong disqualifies mid-sized bonds against smaller funds. A $240,000 penal sum passes against a fund collecting $15 million annually (2% = $300,000) and fails against a fund collecting $10 million (2% = $200,000). The plan-wide contribution figure comes from the fund's own filings, not the parties' estimates; the Form 5500 is the working source.
Test Two: Net Income — § 4204.13(a)(1)
The bond is excused where the purchaser's average net income after taxes for its three most recent fiscal years — reduced by any interest expense incurred with respect to the sale that is payable in the fiscal year following the date of determination — equals or exceeds 150 percent of the bond amount. Two features do the analytical work. The three-year average smooths a single good year; a purchaser cannot ride one windfall through the test. And the interest-expense reduction is the regulation's leverage detector: acquisition debt service comes out of the income figure before the comparison runs. A platform generating $1.2 million of average net income against an $800,000 penal sum passes comfortably at 150% — until $450,000 of first-year acquisition interest reduces the figure to $750,000 and the test fails by $450,000. Private-equity structures stumble here precisely because the regulation was drafted to make them.
Test Three: Net Tangible Assets — § 4204.13(a)(2)
The bond is excused where the purchaser's net tangible assets at the end of the fiscal year preceding the date of determination equal or exceed the unfunded vested benefits allocable to the seller under § 4211 with respect to the purchased operations — or, where the purchaser was already obligated to contribute to the plan before the sale, the sum of the purchaser's and the seller's allocable UVBs. Three practice notes. Tangible means tangible: goodwill and acquisition intangibles — the largest line items on many post-closing balance sheets — are excluded, which is the second place leveraged structures fail a test they modeled as passing. The UVB figure is the plan's number: the § 4211 estimate letter is not optional diligence here, because the comparison cannot run without it. And the previously-contributing purchaser carries a heavier load — its own allocable UVBs stack onto the seller's — a detail that surprises strategic acquirers already inside the fund.
The Multi-Plan Aggregation Rule — § 4204.13(b)
Where the purchaser assumes the seller's obligation to more than one plan, the financial tests run on the aggregates: total bond amounts across the covered plans against the income test, total UVB figures against the asset test. A purchaser that would pass each fund's test in isolation can fail the aggregate, and the converse structure — passing some funds and bonding others — requires care in how the requests are framed plan by plan. This is exactly the species of allocation question the desk works through on multi-fund files before any request goes out.
The Conditions Everyone Forgets
The variance is self-executing but not self-effectuating. Section 4204.11 conditions it on the parties informing the plan in writing of the § 4204 intention and demonstrating the criterion — to the plan's satisfaction. The demonstration is a documented submission: the figures, their sources, the computation. A variance analyzed in counsel's memo but never communicated to the fund excuses nothing. And the demonstration invites scrutiny: the fund may test the figures, dispute the tangibility of assets, or question which fiscal years govern. The submission should anticipate the audit it will receive.
The Stale-Analysis Trap
Every test runs on the purchaser's figures, and in a leveraged transaction the purchaser that exists at signing is not the purchaser that exists at closing. Net tangible assets shrink under acquisition goodwill and new debt; net income shrinks under the regulation's own interest adjustment. A variance screen run in early diligence against the pre-deal balance sheet routinely reaches the opposite conclusion from the same screen run against the pro forma — which is why this desk verifies every variance claim against post-closing figures before concurring, and why our quote states the concurrence or the correction in writing. The intake worksheet on this site collects the test inputs and transmits them with the file, so the verification starts from your own numbers.
When the Tests Fail: PBGC Individual Variances — §§ 4204.21–.22
Subpart C preserves a petition route where no self-executing criterion is met: the parties may request an individual variance or exemption from PBGC itself, demonstrating that the request meets the regulation's standards and that relief would not significantly increase risk to the plan. The route is genuine and occasionally granted — but it is agency process on an agency calendar, and M&A closings rarely wait for one. In practice the petition serves transactions with unusual equities and patient parties; for the rest, the bond is faster than the argument, and the bond is what this desk is for.
What the Free Analysis Actually Is
On every submission, this desk re-runs all three tests against the post-closing balance sheet and states the conclusion in writing: concurrence that a criterion is satisfied — in which case no bond is required, no premium is charged, and the letter is yours to hand the fund — or the specific arithmetic by which each test fails, in which case the placement conversation begins from shared numbers. We publish the tests, the traps, and the practice on this page because informed counsel produce better files, and because the analysis is only frightening to sureties whose economics depend on bonds that should never have been written.
Authorities: 29 CFR §§ 4204.11–4204.13; 29 CFR §§ 4204.21–4204.22; ERISA § 4204; ERISA § 4211. Regulatory text as in effect at publication; the regulation governs over any summary.