Retirement Plans in Mergers & Acquisitions: How a Pimple Can Cause Real Headaches

Organizations engage in mergers & acquisitions (“M&A”) activity for a variety of reasons – and, generally speaking, it’s part of a strategic vision to help their firms grow. Admittedly, there are lots of “devil in the details” when it comes to both “striking the deal” as well as implementation.

One such area that is all-too-often overlooked are the company-sponsored retirement benefits. These generally aren’t “central” to “striking the deal” and are viewed as something that can be dealt with “later” after “the deal” is done. They are viewed as the proverbial “pimple on the elephant’s backside” in the minds of the strategic deal-makers

But this is a pimple that can grow into a resource-consuming & costly headache. There are many intricacies that go into decisions around retirement plans as part of the M&A process. Just to rattle a few here as the “tip of the iceberg”
• Is it a stock or asset sale?
• Should the acquired plans be terminated? Or merged? Or maintained in parallel? Or frozen?
• Each approach brings its own issues: employee action required…maintaining protected benefit provisions…adhering to anti-cutback rules…compliance testing aggregation…
The liability implications for the buyer & seller can be very different with each approach, depending on a variety of factors, including when the approach is adopted & what is (or isn’t…) specifically negotiated into the terms of sale!

A little foresight at the time of “the deal” can really go a long way to reducing downstream headaches. Not to say the retirement plan should be “central” to striking “the deal” BUT at the same time, it shouldn’t be forgotten altogether either…

Of course working closely with, and receiving advice from, experts who truly specialize in retirement plan benefits can help to navigate the issues, and execute the desired outcome, so that the pimple does not blossom into a headache…

Author: Ben Hall, ChFC, AIF®

VP & Managing Director – JKJ Retirement Services

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