Merger of Plans: Fiduciary Issues

[Guest Yanks23]

We have a transaction where several plans, some underfunded and a few overfunded, will be merged. Does anyone know whether merging the overfunded plans with the underfunded plans raises any fiduciary issues?

[Effen]

Lots of issues. Take a look at 1.414(l)

Are type of plans are these? multi-employ? bargained? single employer?

[Guest Yanks23]

I have reviewed both 414(l) and ERISA 208. Below is a short summary of my research on the issue of whether there are fiduciary issues with merging an under-funded with an over-funded plan. Does anyone have any other thoughts on this or my summary below?

Courts generally have concluded that, in implementing the merger, compliance with Section 208 of ERISA, which tracks the requirements of IRC Section 414(l), satisfies fiduciary requirements under ERISA. Internal Revenue Code Section 414(l) requires the funded level of benefits for each participant in the plan on a termination basis after the merger to be the same as or better than it is before the merger. This mean that the 100% funded level of benefits in an over-funded plan must be preserved after the merger. If the merger otherwise would reduce the funded level of the plan below 100%, the plan may be required to maintain a special schedule of benefits to assure compliance with IRC Section 414(l). Similarly, Section 208 of ERISA provides that a pension plan may not merge with any other plan unless each participant in the plan would receive a benefit immediately after the merger, which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger (if the plan had terminated). Section 208 does not apply to any transaction to the extent that participants either before or after the transaction are covered under a multiemployer plan to which title IV of ERISA applies.

[david rigby]

When you review the "funded level" (especially in the overfunded plan), be sure to note the plan provision that defines what happens to excess assets, if any, upon plan termination.