Plan Acquisition Question

[heygents]

A company who's plan we administer just bought (asset acquisition) 100% of another company who has a 401k plan. The owner of the business would like the acquired employees to be immediately eligible to participate and to receive matching contributions and for the acquired business's plan to be merged into the existing company plan. Is this appropriate and allowed?

Thanks

[Bill Presson]

Of course. The documents need to be done correctly, but this is done quite often.

[ESOP Guy]

The only down side to the plan merge issues is as follows:

It is my understanding that if the prior plan was disqualified for some reason and you merge the two plans that taint can merge into the buyers plan.

Not sure how huge of a risk that is and my guess is there might be some lawyers who disagree. I just know on a number of situations like that I have seen lawyers advise leave the old plan to terminate and let the people take distributions from that plan. They saw the risk of the unknown as not worth it.

[david rigby]

Of course. The documents need to be done correctly, but this is done quite often.

Note, if there is no mention of the plan in the buy-sell agreement, default plan provisions may apply, and may be contrary to the desire expressed in the original post.

[MoJo]

It's all appropriate (and my preference is to actually "merge" plans together, lest the money "leak" and not be available for retirement) BUT - these are issues that should have been discussed, decided and documented BEFORE THE ACQUISITION TOOK PLACE.

Having been doing this for more decades than I care to count, I'm not naive enough to assume it will ever happen in the right order, but I can still put my two cents in.

In the organization for which I am currently providing my services (a TPA/Consulting/Actuarial/Technology company) we are trying to educate clients that corporate transactions that may have plan impacts need to be handled earlier - and we are trying to gain their trust so that they will look to us for plan advice when such is contemplated.

After the fact decisions can restrict options.

[K2retire]

When I taught Business Entities to paralegals I also tried to emphasize the need to consider retirement plans in M&A transactions.

[Guest Vikaei]

My parent company is being acquired (in Europe), but I need to join the U.S. office of our acquirer as an employee after the acquisition.

Do my 8 years of service automatically (by law) count toward vesting in their 401(k), or could I end up having to start from scratch? This is a big deal to me, as I am over 50 years old.

Thanks!

[QDROphile]

The answer depends on the nature and structure of the acquisition. It may be a big deal, but what difference will it make concerning your ongoing employment? In other words, what will you do differently depending on the answer?

[Guest Vikaei]

Not much - except I have a competing job offer which would take 7 years to fully vest.

If I knew my current years of service were protected by law, I would be much less inclined to leave after the buyout.