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M&A Mapping considerations


bmore1147
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In a stock sale Merger - I have a few questions about the mapping process for seller assets

1. if you map like-to-like - are the affirmative investment elections and the corresponding documentation from the seller plan still acceptable if the buyer plan is DOL audited post merger- does the buyer need new affirmative election forms when the plans are merged?

2. if the seller plan was 404© compliant (assuming buyer plan is also) are the assets still protected under 404c? what if you don't have affirmative election documentation from seller plan? - essentially- if you don't have the documentation- can you lose the protection for the assets that came over?

Always advocate for QDIA mapping- because of the protection and it creates affirmative elections for anyone that opts out - but some push for like-like to minimize participant disruption.

Thanks for any help. Happy Thanksgiving

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Agreed- But if they had previously elected that investment choice in the seller plan, that active election cannot carry over in the merged plan? Similar to how it carries over when investments are removed/replaced in a plan - but given the potential blackout it may not apply.

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An election does not carry over when investment options are removed or replaced in a plan.

Can you clarify this comment? If a participant makes an active election from a broad range of investments (assuming the action and investments, along with any disclosures- satisfies 404©) and then at some point one of those investments is determined to no longer be prudent, and is removed by the plan sponsor (satisfying 404a1b and 408b-2c duty to monitor) then those assets are no longer protected under 404c because the participant did not make an active election? Even though that participant initially made an active election? Assume this all happens in the same plan, no M&A - If a participant was in the plan for 20-30 years, and the lineup turned over in that period- then if they were mapped like-like there would be no protection, even if they had made active elections initially? Can you cite?

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A participant makes an election with respect to a particular investment, such as a mutual fund, for which there is disclosures available. A participant does not make an election for a class of assets, a category of mutual funds, or "something like" the actual investment that the participant has chosen after careful research and review of the available disclosure materials. If the money is moved from an investment that the participant has chosen into something else that the participant has not chosen, then the investment is not directed by the participant. You can argue that the participant chose by negative implication -- not making an election after being informed what the outcome would be of the transaction, but I do not think that argument is a winner. However, that does not meant the fiduciary has liability; the core 404© protection is simply lost. That is what all the misplaced excitement over QDIAs is all about -- situations in which the participant does not make an affirmative choice of a specific investment and ends up in a fund, or another fund, not chosen except by default or design. As for a citation, it is all in the 404© and related regulations (now that the 404(a) regulations have absorbed a lot of 404© regulations). I should be challenging you to cite authority that the regulation about participant directed investments is satisfied when there is a move to some other investment that someone else has chosen and thinks is similar.

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PPA extended relief of mapping participant assets assuming the following conditions are met- and provided relief so long as assets were mapped to funds of similar risk/return profiles.

 The participant exercised control over their investments prior to the change (i.e. the participant and not the plan’s fiduciaries made the original investment allocation decision), 

 The change results in a reallocation of amounts invested in the discontinued option to a new or remaining investment option under the plan, 

 The remaining or new investment option is “reasonably similar” in terms of risk and return to the discontinued option, 

 Participants are notified of the change at least 30 but not more than 60 days prior to the effective date of the change. The notice must inform participants that the change will occur unless instructions are received to the contrary, and 

 The participant has not provided affirmative investment instructions to move to another investment option prior to the effective date of the change.

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Thank you for the reminder about the "qualified change" provisions that came out of the PPA. While refreshing my memory, I came across a lot of early discussions (circa 2007) about concerns about fiduciary liability with mapping under the "qualified change" standards. I guess I just filed the subject under "not preferred" and closed my mind on the subject until it was no longer a retrievable memory. The PPA provided the protections as you describe. For what it is worth, I still do not prefer it, but I think all the initial fuss was more an exercise in demonstration of the commentator's technical and analytic chops than a realistic assessment of any material risk of liability to a fiduciary that proceeded in good faith under the standards. Section 404(c ) has not provided a fertile ground for successful claims of fiduciary liability and I do not think that intelligent mapping is a material risk.

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Agreed- QDIA mapping is always preferable, and I believe its not because of the relief of the QDIA vehicle, but that it creates an affirmative election for anyone not in the QDIA- especially considering a few of my clients who have had DOL audits have been asked to provide documentation around affirmative elections -

So back to my original questions

1. if you map like-to-like - are the affirmative investment elections and the corresponding documentation from the seller plan still acceptable if the buyer plan is DOL audited post merger- does the buyer need new affirmative election forms when the plans are merged?

2. if the seller plan was 404© compliant (assuming buyer plan is also) are the assets still protected under 404c? what if you don't have affirmative election documentation from seller plan? - essentially- if you don't have the documentation- can you lose the protection for the assets that came over?

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