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New Health Plans Offer Twists on Existing Options, with a Dose of 'Buyer Beware'

"While they're still niche products, these nontraditional options say they aim to soothe consumer frustration with high premiums and deductibles by harnessing the growing availability of price information or patients' newfound comfort with online health services."

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How to Lower 401(k) Costs in a Buyer's Market

"With the growth of online investment education resources -- and the explosion in the use of target-date funds -- the traditional service model is less effective and more expensive than the new alternatives. Savvy plan sponsors are choosing specialized advisory services to meet specific plan objectives as needed, saving money on underused services, and providing a better benefit to employees.... For most small business plans, the simplest solution is to hire an ERISA Section 3(38) professional financial adviser."  MORE >>

Benefits in M&A Deals: What Buyers Should Do with a Target’s 401(k) Plan

"The buyer has three broad paths: terminate the plan before closing, continue it on a standalone basis post-closing, or eventually merge it into the buyer's own 401(k) plan.... Each path carries distinct legal, administrative, and cost implications.... [If] no affirmative decision is made, the default path is continuation ... The only practical path to later 'terminate' the plan is a merger into the buyer's controlled group 401(k) plan. This article outlines the key factors buyers should evaluate early in the transaction process to arrive at the right decision with confidence."  MORE >>

Why Selling to an ESOP Costs Less Than Selling to Another Buyer: Breaking Down the Cost Differences (PDF)

13 pages. " Selling to an ESOP is expensive, usually costing 2% to 4% of the sale price,... The cost of selling to a non-ESOP buyer generally ranges from 4% to 9% of the deal, ... [M]any sellers balk at the costs of setting up an ESOP, even if they will ultimately pay more to sell to another buyer.... In an ESOP sale, the company pays some of the fees up front and the rest at close. While these fees are tax-deductible and thus have a significantly lower real cost, they still come up front."  MORE >>

Acquiring a Company with a 401(k) Plan: A Practical Guide for Buyers

"Why timing matters: The successor plan rule and pre-closing 401(k) plan termination ... Buyer's post-closing options if the plan is not terminated before closing ... Practical issues and potential complications for buyers to consider: [1] Outstanding participant 401(k) plan loans ... [2] Recordkeeper requirements ... [3] Plan investment options with unique potential costs or timing considerations."  MORE >>

401(k) Plans in Stock Purchase M&A Transactions: A Buyer's Guide to Choosing Termination or Merger

"[T]erminating a target's 401(k) plan prior to closing (which is typical in scenarios where the buyer will be covering the target's employees with the buyer's 401(k) plan postclosing) is often the preferred approach for several reasons ... Due to the administrative challenges ... with postclosing transitions, some buyers opt to maintain the target's 401(k) plan for a period following closing and later merge that plan into the buyer's plan."

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Multiemployer Pension Plans: Potential Successor Liability from Buyer's Attempts to Continue Seller's Business

"The Seventh Circuit said the lower court ... improperly created a 'Big Buyer' loophole ... [which] would destroy 'a finding of continuity even where a large buyer in essence swallows a smaller seller whole and continues its business as part of the buyer's business.' To avoid this result, the Court instructed the district court to reevaluate the continuity factors by properly focusing on the extent to which the business of the predecessor company was continued by the putative successor after the asset purchase." [Indiana Electrical Workers Pension Benefit Fund v. ManWeb Services, Inc., No. 16-2840 (7th Cir. Mar. 12, 2018)]  MORE >>

A Buyer's Post-Closing To-Do List for Employment and Benefits Issues

"Detailed employment and benefits diligence likely identified numerous potential liabilities and differences between the buyer and the target company, and it is now time to integrate the acquisition into the buyer's established business or portfolio.... Where is a buyer to begin, and what post-closing employment and benefits issues should be prioritized?"  MORE >>

Avoiding M&A Post-Closing Pitfalls: A Buyer’s Guide to ESOP Wind-Downs

"To address the costs associated with the ESOP wind-down process, buyers should negotiate a dedicated escrow or reserve specifically for ESOP wind-down costs. This should be based on: [1] Estimated distributions and participant counts; [2] Projected legal, fiduciary and administrative costs (e.g., cost to administer participant distribution elections, obtain fiduciary tail policies, and seek an IRS determination letter); and [3] Potential audit and compliance expenses, including any expenses related to operational or other compliance issues for the plan."  MORE >>

A New Opportunity for Advisors: Younger Indexed Annuity Buyers

"63% of millennials and 54% of Gen Xers are more likely to put part of their portfolio in an annuity or other guaranteed income solution. This pivot opens the door for advisors who have historically only used annuities as near-retirement products. They can now focus on positioning them as early-stage planning tools."  MORE >>

Japan's Government Pension Investment Fund Cutting Back on Japanese Bond Allocation

"The fund needs to raise about 8.87 trillion yen this fiscal year to pay pension benefits ... As part of its effort to diversify assets and generate higher returns, [the Government Pension Investment Fund (GPIF)] recently started investing in emerging markets stocks. GPIF is historically one of the biggest buyers of Japanese debt and held 71.9 trillion yen, or 63% of its assets, in domestic bonds as of March, according to the fund's financial statement for the 2011 fiscal year. That compares with 13% in domestic stocks, 8.7% in foreign bonds and 11% in overseas equities."  MORE >>

Pension Bill Irks Experts: No Bonds Without Federal Oversight

The bill ... would require state and local governments to submit annual reports to the Treasury Department disclosing detailed information about their pension plans, including unfunded liabilities determined on the basis of a Treasury rate, rather than the more commonly used rate of return on investments, which is higher.  MORE >>

New Bill Would Forgive 401(k) Withdrawal Fines for Home Buyers

"[T]he Home Savings Act [HR 7185] ... would amend the Internal Revenue Code of 1986 to permit penalty-free withdrawals for up to five years when used for down payments or closing costs on a primary residence."  MORE >>

Creating Income Is Top Motive for Annuity Buyers

"[W]hile buyers list many reasons for their purchases, the single most important factor cited by the largest number of investors was the ability to generate guaranteed income while continuing to be able to access their account value. Other things that influenced investors' decision to buy include the interest rate or projected return of the annuity, the ability to annuitize the contract and receive guaranteed lifetime income, and protection of principal."

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Seventh Circuit Rejects 'Big Buyer' Defense to Successor Liability

"[T]he Seventh Circuit rejected the purchaser's so-called 'big buyer' defense that it did not substantially continue the seller's business because the seller's operations made up only a small proportion of the purchaser's operations.... [T]he Court explained that the appropriate inquiry was the extent to which the purchaser continues the seller's business after the asset purchase, which required an evaluation of the totality of the circumstances." [Indiana Electrical Workers Pension Benefit Fund v. ManWeb Services, Inc., No. 16-2840 (7th Cir. Mar. 12, 2018)]

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PBGC Fails in Attempt to Hold Asset Buyer Liable for Seller's Underfunded Single Employer Pension Plan Termination Liabilities

"[S]everal federal courts of appeal have held that a buyer of assets may be held liable as a successor under federal common law for unpaid ERISA multiemployer plan withdrawal liability or contributions if the buyer had notice of the liability and continued the business of seller with substantial continuity of operations. The PBGC ... asked the court to apply the same doctrine in the termination liability context. Finding that ERISA already imposed a specific statutory scheme for the collection of plan termination liabilities under ERISA, the district court declined to apply federal common law in this case." [PBGC v. Findlay Industries, Inc., No. 15-1421 (N.D. Ohio Dec. 29, 2016)]

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Fiduciary Risks Involved in Transferring Assets from a Seller's 401(k) Plan to the Buyer's Plan

"Fiduciaries of 401(k) plans considering accepting asset transfers of former employer stock have often been advised to engage counsel to evaluate the prudence of holding the former employer stock in the buyer's plan as an investment alternative (even if 'frozen' to new investment) and establish a timeline for requiring that plan participants divest the former employer stock within one to two years of the asset transfer from the seller's plan.... In Tatum, the plan was not properly amended to require the divestiture of former employer stock. This failure to properly amend the plan converted a plan design decision, which was a non-fiduciary or 'settlor' decision, into a fiduciary act." [Tatum v. RJR Pension Investment Comm., No. 13-1360 (4th Cir. Aug. 4, 2014; cert. denied June 29, 2015)]

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From 'Buyer Beware' to 'Buyer Aware' -- Evaluating Guaranteed Income Solutions in DC Plans (PDF)

"From a plan sponsor's perspective, the choice of one guaranteed income solution over another can feel ambiguous, because it is difficult to properly value the features of each.... [This paper focuses] on how to quantify and compare alternative solutions in terms that matter to participants -- income terms -- in order to better align the selection process with what participants want."

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Seventh Circuit Rules That Buyer of an Employer's Assets Is Not Liable for Retirement Benefits Payable Under the Employer's Top Hat Plan

Excerpt: Generally, when a federal right is involved-here the plaintiff's right to retirement benefits under ERISA- the courts will impose liability on the buyer, even in a bonafide sale, so long as two conditions are met: (1) the buyer had notice of the liability before the purchase and (2) there is substantial continuity in the operation of the business before and after the sale. Prong (2) is normally met if no major changes are made in that operation. Here, the plaintiff failed to show that no major changes had occurred.

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Creating Buyers: The ESOP as Exit Strategy for Company Owners

Excerpt: Interest in creating employee stock-ownership plans seems to be ticking up among business owners worried that capital-gains tax rates soon may rise. They may want to sell now while the rates stay at 15%. These are tough times for selling a privately owned business. Valuations are low as the economy struggles to emerge from its recession, and even where buyers and sellers can agree on price, it can be difficult to secure bank financing to complete a deal. That's pushing some business owners to create their own buyers -- in the form of employee stock-ownership plans that also serve the purpose of providing employees with retirement benefits.

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