Disability Benefit Plans in M&A

[Guest jhall]

Unfortunately I've seen little specifics regarding the actual mechanics and best practices of dealing with disability benefits in M&A and would welcome practical advice. Our situation is an asset deal where buyer will be hiring all of seller's employees at closing and seller will disappear. Seller intends to terminate all of its benefit plans (including short and long-term disability benefits) as of closing. Buyer's disability plans require individuals to be actively employed for at least one day before being eligible for coverage. What happens if seller's employee is out on short-term leave at closing. Employee hopes to return and Buyer intends to hire all of Seller's employees, including the one out on leave, but the employee gets worse, never returns to active employment, and would generally qualify for long term disability benefits. Does Buyer have to cover the individual under its long term disability plan if it otherwise agreed to recognize service with the Seller for most purposes? Can Buyer deem the individual to have been actively employed and thus eligible for coverage under the LTD plan?

[Guest KAL]

Unfortunately I've seen little specifics regarding the actual mechanics and best practices of dealing with disability benefits in M&A and would welcome practical advice. Our situation is an asset deal where buyer will be hiring all of seller's employees at closing and seller will disappear. Seller intends to terminate all of its benefit plans (including short and long-term disability benefits) as of closing. Buyer's disability plans require individuals to be actively employed for at least one day before being eligible for coverage. What happens if seller's employee is out on short-term leave at closing. Employee hopes to return and Buyer intends to hire all of Seller's employees, including the one out on leave, but the employee gets worse, never returns to active employment, and would generally qualify for long term disability benefits. Does Buyer have to cover the individual under its long term disability plan if it otherwise agreed to recognize service with the Seller for most purposes? Can Buyer deem the individual to have been actively employed and thus eligible for coverage under the LTD plan?

A couple of questions I have before trying to answer the questions. Is your STD benefit self administered or do you have a third party? As a partial answer to your questions, if you have a self administered STD program, you can merge them into your current STD plan.

You may also possibly consider working with the seller's LTD provider to see if there is any LTD continuation of coverage to ensure that employees who may have paid for LTD coverage with the seller are able to continue their benefit with that LTD provider. I would probably need more discussion with this person.

[Guest jhall]

Yes, Buyer's STD is self-insured / self-administered so our assumption would be to include them or cover the one individual that never returned to work under that if necessary. The bigger concern though would be with the LTD coverage as that is with 3rd party insurer and includes actively at work requirement. Not sure to thank of how that requirement operates in this situation and we cannot get much clarity from the insurer so far.

Our bigger concern though would be what happens if individual can never return and qualifies for long term disability. If that happended it would likely be at point after seller's plan had disappeared so not sure seller's plan could be extended to cover that, even if Buyer agreed to pay. (Seller really wants to terminate everything as soon as possible and this one individual woul likely be only person left not covered under Buyer's LTD plan.) So concern would be we have individual arguably qualifying for LTD. Old LTD plan is gone. Buyer had extended offer to employ individual even though not active. Individual never returned though and so never had any active employment with Buyer. Even if Buyer agreed to try and cover or include in the LTD plan, insurer could refuse / object because individual was never actually employed by Buyer.

I know in the past before the Lessard case Buyer's often excluded people on leave from offers or made them more squarely contingent upon their return to active employment but some Buyers are increasingly reluctant to do that. In that context, how do you resolve promise to basically hire / extend employment to person out on leave with LTD insurer that requires individuals to have been actively employed to obtain benefits under the insurance policy.

(Thanks for suggestion about checking with seller's insurer about continuing coverage or extending--that is what we are pursuing currently)