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Retirement Plans in Mergers & Acquisitions; What Questions Should You Be Asking?

Sep 7, 2023

During a merger or acquisition, careful attention must be paid to the seller’s retirement plan(s) to ensure there are no issues after the transaction. With proper planning, there can be a smooth transition with minimal impact on the employees. Below are some questions to consider:

What is the type of transaction?

Whether the transaction is an asset sale, a stock sale or a disposition of a portion of the seller’s business has an affect on the options available for the retirement plan. 

Will the seller’s plan be terminated, merged into the buyer’s plan or remain as a stand-alone plan?

This is a decision that should be made well in advance of the close to avoid potential corrections later.

What happens to outstanding loan balances for employees of the seller’s plan?

A plan termination may result in unintended tax consequences for employees with outstanding loan balances. 

Is there a defined benefit plan with unfunded liabilities?

Defined benefit plans are complicated.  A buyer needs to be fully aware of outstanding funding obligations as this may have an impact on the transaction price.

Retirement Plan M&A Checklist

It is extremely important to review the plans and consider all available options early in the transaction to ensure a smooth transition for the employees.  As part of our due diligence process, we see these areas as common and important:

  1. Review plan documents for compliance with current law and ensure that all required amendments have been executed. We will also review plan provisions for compatibility with the buyer’s plan.
  2. Review non-discrimination testing results to analyze for potential liability.
  3. If there is a defined benefit plan, we will review the plan for promised benefits and any unfunded liabilities and long-term obligations in the plan.
  4. Work with current investment providers to lay out a plan for termination if the plans are to be terminated.
  5. Review the seller’s fiduciary practices for any errors or poor practices. This analysis will include the timing of employee contributions, committee meeting minutes, and bonding levels.
  6. Review plan operations such as loan and distribution procedures, enrollment procedures, and compliance with reporting requirements.
  7. Develop transition timelines and employee communication plans.

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