Plan Mergers/Controlled Group

[KevinMc]

In the event of a common owner that meets the definition of a controlled group buying multiple companies (some with plans, some without plans, some with safe harbor plans, some without safe harbor plans):  how long since the acquisition of any particular company with any particular plan does the new ownership structure have until they must test all plans together and presumably offer the plan to companies it has acquired without one?  Participant notifications?  Any help is appreciated.

[Paul I]

The predictable, automatic, without-thinking response would point to the transition rule which says they have up to the beginning of the plan year following the first full plan year following the year in which the acquisition took place.  The reality is that the realm of retirement plans involved in mergers & acquisitions can be exceptionally complex and arcane depending upon many factors.

Attached are two decent checklists that identify key points to consider and that will illustrate the breadth and depth of the issues that should have been considered both before and after each acquisition took place.  I suggest reading through both of them and use each checklist for two or three of actual acquisitions the company has done.  I expect this will be an eye-opening exercise into the topics and issues involved.

At a very high level, here are some highlights:

• Consider each acquisition as a separate event both within and across plan years.
• Identifying the nature of the acquisition as a stock transaction or an asset transaction is paramount.
• Actions taken before the an acquisition is consummated significantly affect actions available after an acquisition is consummated.
• Changes made to either the seller's plan or the buyer's plan after the acquisition can result in an early termination of the transition rule mentioned above.
• Plans with different plans years have an added layer of complexities.
• An acquisition can have an unanticipated impact on determining who is or who is not a highly compensated employee, particularly when the top paid group rule was used by any plan in the controlled group, or when the acquisition is an asset transaction effective during the plan year.

You should have substantial experience with 410(b) coverage testing and 401(a) nondiscrimination testing for plans within a controlled group when dealing mergers & acquisitions. 

May the common owner have the good fortune, either through due diligence or sheer luck, to find that all of the acquired companies and their plans are in compliance.

 

Checklist-for-Plan-Merger-Acquisition-2017.pdf MA Retirement Plan Due Diligence.pdf

[Peter Gulia]

And if you need full information, Ilene Ferenczy wrote the book on Employee Benefits in Mergers and Acquisitions, published by Wolters Kluwer.

[KevinMc]

Quote

Very Helpful, thanks!