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M&A Impact on Plan Participants

Apr 18, 2023

In the final episode of our three part series on benefit plan M&A, Denise Finney of EisnerAmper and Chris Hueth of Raymond James highlight the key considerations for plan fiduciaries need to consider when guiding benefit plan participants. (To listen to part 1, click here. To listen to part 2, click here.)


Denise Finney:Hello again. I'm Denise Finney, partner in charge of EisnerAmper's Pension Service Audit Practice.
Chris Heuth:And I'm Chris Hueth, financial advisor at the Workplace Retirement Group at Raymond James. If you missed episodes 1 and 2 we encourage you to go back and listen in on those sessions, which covered an overview of benefit plan mergers and acquisitions, and the impact that has had on plan operations.


DF:Today we're going to look at M&A impact on plan participants. So Chris, what are some of the things that plan fiduciaries need to look at when it comes to plan participants?
Ch:So there's a couple different things, and I think we mentioned some of this before. When M&A transaction happens the benefit plans, the retirement plans, are often not the first thing considered. And it's a really important thing, especially from an employee participant standpoint because it's oftentimes going to be their largest or second-largest asset outside of the home that they own.
Ch:So making sure that there's a strategy in place as far as communications when it comes to when something is going to happen with the retirement plan is so important.
So there's a couple different things that you can do, but right off the bat we recommend sitting down with your financial advisor who's consulting on the plan, sitting down with your record keeper, and just getting an idea of when things are happening. When the blackout period is going to be, when mandatory notices are going to go out, and just making everyone aware. It's not even the employees at that point, it could just be the HR department who's going to be getting questions about the notices when they get delivered in the people's mailboxes or whatever it is.
DF:Right. So it's important to have a plan in place and follow that plan, and to get everybody involved and have that buy-in right from the beginning, so it's very clear as to what the expectations are.
Ch:Exactly. And yeah, it starts at the HR level, it starts at the retirement plan committee level, and then to the employees. So typically before all this is going to happen we'll jump on a call like I said with a record keeper, plan sponsor, us, and we'll just talk through, hey, the Sarbanes-Oxley Notice is going to go out, the QDIA, the enrollment notices, these different things, which I always think of as being the mandatory notices that people may or may not actually look at.
Ch:Right, they come from the record keeper. Sometimes they're industry jargon filled and what does this stuff even mean? So we really make an effort to when we know this stuff is going out, we want to do something. We want to speak to the employees, we want to do some webinar communication strategy to say, hey, you're going to be getting this stuff. This is what's going to happen. It's okay. You're still going to have your money, and just be aware of what's going to happen over the next couple of weeks.
DF:Because if they don't communicate clearly, you know that that plan administrator at the company, at HR department, is going to be overburdened with so many questions from plan participants.
Ch:Exactly, bombarded. And that's why we even like to say when we're working with the record keepers and say hey, just let us know as soon as those notices are going out because HR probably will start getting questions, so that they're ready for it right, so that they're not caught off guard and they know that these things were sent out so that they can say oh no, this is normal, everyone's getting this. We're working through it, the transition of the plans, of record keepers and funds, all these different things are happening right now,
DF:And their benefits are protected.
Ch:Yes, yeah. And that's a huge thing, right? Their money's safe. It's being transferred over. And again, this is where you get out in front of these things, you have a strategy, it can be helpful in just setting expectations like anything else.
But then also, I mean one of the things that we always try to do then is have some sort of education on the other side. So everything transferred over, what happened? Did you do like to like mapping? Was the QDIA re-enroll? What are these things that happened and what does the go forward look like for these employees? So just getting out in front and helping them, and being able to have that conversation in plain English, and just telling them, it makes all the difference in the world. And it makes the plan sponsors life, and time to plan committee of the HR department so much easier when they have that all straightened out, otherwise they're playing defense.
Ch:So when you're performing the audit Denise, what are some things that you're looking at from the participant level? So what are you thinking about? What are you making sure is happening?
DF:Sure. Well we're definitely looking to see that the plan assets were moved and complete and accurate in the same amount. And then at the participant level testing to ensure that the participant's account balance was then transferred over completely and accurately. Is it in the correct fund due to the mapping that the plan sponsor chose? And that's really important because we've seen a couple of times, especially with same last names, that accounts might get transferred over incorrectly when they have the same last name, it depends if they're looking at it by social security number and transferring it, or last name, there could be a hiccup. So it's really important for the plan administrator who is responsible for the plan to take a look at that, and also have all of that documentation ready for us as auditors. Because a lot of times that happens and then a year later we're auditing the plan, and then the access to the prior record keeper has been cut off.
Ch:Right, then you're stuck.
DF:Yeah, you're stuck. You're stuck calling the old service provider and begging for them to get you that information, but you're no longer their client.
Ch:Right, which may or may not be a priority for them at that point.
Ch:So to get ahead of something like that, what are some things that plan sponsors can do to avoid the name mix up or whatever it might be to ensure that the data is being transferred over cleanly?
DF:Well testing that data, right?
DF:So it's getting the list of participants from the one service provider and checking it to the new service provider. It could be as simple as that, on a test basis, however you want to do it. And then of course for the total you want to make sure that the participants equal the plan assets.
DF:And that comes over. And one thing that gets a little tricky sometimes is loans.
Ch:Yes, yes.
DF:Because that's a phantom number, there is no cash behind it, it's just an account balance. And I've had an instance whereby a client, they had a spinoff, and the money that was spun off into this new plan was just the participant account balance less the plan loans. The record keeper forgot about the loans.
Ch:Oh my gosh.
DF:And so it wasn't until we got in there months later looking at it because now we're performing the audits, and the plan assets in total don't agree to what went over. And lo and behold, it's the participant loans.
DF:So it's definitely something for plan sponsors to keep an eye out for is what is happening with these participant loans, and that it gets transferred over.
Ch:That totally makes sense, yeah. You definitely don't want to... It seems like such a silly thing, how do these numbers not add up? And surely there's a reason, but you got to have a plan for that too. I mean, that's something that we see also, are they being transferred over, are we keeping an eye on them, it's important, and talk about the things that aren't top of the list typically, but need to definitely be made aware of and have a plan for.
DF:Right. So if you take a step back what is the most important things? Make sure that you have the plan documents and the amendments that all states, if it's a planned merger or termination, that you have downloaded all of that prior record keeper information, making sure it agrees to the new record keeper, the ins and the outs, making sure that everybody is on par at the participant level as well. And then testing, testing that, spot checking as a plan administrator even before your auditor gets to it.
Ch:Right. It's kind of funny to think about, it's like all these different pieces coming together to make sure it all lines up, whether it's the employee benefit plan audit, whether it's the education communication strategy to make sure that people are aware, but it's a lot of different forces that are coming together when these transactions happen.
DF:And we live and breathe it every day so it's easy for us to talk about it.
Ch:Right, but there's a lot of things to be aware of.
Ch:If you're not aware of them then you can easily forget.
DF:Right, absolutely. Thanks so much for joining us on this final episode, we've enjoyed the time we spent together. If you have any questions on this material please feel free to reach out to us at, or (732) 243-7163.
CH:Or to me Chris Heuth at, or call my cell phone at (732) 996-1403.
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Denise Finney

Denise Finney is the Partner-in-Charge of the Pension Services Group dedicated to employee benefit plan audits. With 15 years of public accounting experience, she specializes in assisting clients with annual audit requirements regarding employee benefit plans.

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