Acquisition: Wholly owned subsidiary of Co. A.

[Guest Ntutini]

My employer has bought a company - effective sale date 3.1.05. What are the legal requirements for benefits? Do we have to have identical benefits are both companies? If yes, from day one? Our 401K company needs 90 days to integrate them into the 401K plan. What benefit issues should I be working on first; what is most critical? We are wondering about the health, dental, life, disability in addition to the retirement plans.

[mbozek]

A stupid Q- Does the purchase agreement contain a provision regarding how the employees of the acquired company are to be treated for benefits? If necessary consult with counsel or an executive who was involved in the purchase to determine what benefits were to be provided and then review the terms of the welfare benefits to determine when benefits will be provided to the new employees. If benefits issues were not negotiated as part of the purchase then you need direction from the HR dept or executives on what to do.

[JanetM]

Was it a stock or asset deal could be the first question. If stock deal they continue the benefits they had before. If asset deal it should be addressed in purchase agreement.

[E as in ERISA]

But be careful of those terms "stock deal" and "asset deal" in today's tax world. With check the box rules and "disregarded entities," then the purchase of a single member interest in an LLC that is disregarded is considered an "asset sale." But technically it is a purchase of the interest in the legal entity. So I would assume legal sponsorship, etc. transfers with the entity. But I don't think that there has been clarification. Ideally, the contract covers it, as mbozek states.

[JanetM]

Good point Katherine.

Ntutini - you don't have to have the "exact" same benefits for both companies. There are discrimination tests that must be passed, but you have until 1/01/07 before the control group rules would apply. Have you considered negotiating with the current providers to continue coverage for a while. This would give you time to study the issue and make better informed decision.

[mbozek]

There is no requirement that existing benefits be continued in a stock deal since the acquiror can change the benefit programs of the acquired company after the sale to conform to benefits provided to its employees. Terms of the sale usually provide that "comparable" benefits will be provided to seller's employees or that existing benefits will be continued for a period of time, e.g. 12 months after the sale.

The terms asset sale and stock sale have different meanings to corporate lawyers than to benefits lawyers. A sale of a 100% of the stock of a sub in the corp world is regarded as an asset sale because the sub is an asset of the parent even though for benefits purposes it is a stock sale in which the benefit programs sponsored by the sub are transferred to the acquiror. The acquisition of a parent by another parent, e.g. ,ATT by SBC is a merger or stock swap.