purchased by private equity firm

Just got told that a client was purchased by a private equity firm.  Does this present any issues other than the usual ones when one company buys another?

And of course the impact on the safe harbor 401k plan was not discussed pre-transaction.  I mean, why would it be? *eyeroll*

Do you yet know whether:

the buyer buys the target’s shares (or capital interests), or buys the target’s assets?

the buyer assumes the target’s retirement plan?

the buyer requires the target to terminate its retirement plan before the closing?

And here’s a practical suggestion: Consider getting and collecting now an advance retainer for more than what you estimate as your full fees for any services you might provide. (After the closing, the target might have no money in its till, or might have it only until the target pays the target’s sellers.)

This is not advice to anyone.

Albany Consultant:

The 401(k) plan is now an issue that the PE firm has to deal with. However, PE firms are notorious for their position that their is no Section 414 "controlled group" between the operating company (your client) and the Private Equity Entity because Private Equity is not really a "trade or business." That is, for retirement plan purposes, nothing should hcange with respect to the administration of your client's retirement plan (other than having a new boss). 

2 hours ago, Peter Gulia said:

Do you yet know whether:

the buyer buys the target’s shares (or capital interests), or buys the target’s assets?

the buyer assumes the target’s retirement plan?

the buyer requires the target to terminate its retirement plan before the closing?

And here’s a practical suggestion: Consider getting and collecting now an advance retainer for more than what you estimate as your full fees for any services you might provide. (After the closing, the target might have no money in its till, or might have it only until the target pays the target’s sellers.)

This is not advice to anyone.

Sounds like the closing already happened (and the seller's plan was not terminated first).  PE rep says that they "didn't consider" how the seller's plan would affect their own plan, which... sounds irresponsible.  Like, is this their first time or something?
 

20 minutes ago, LITHIUM EXPOSED said:

Albany Consultant:

The 401(k) plan is now an issue that the PE firm has to deal with. However, PE firms are notorious for their position that their is no Section 414 "controlled group" between the operating company (your client) and the Private Equity Entity because Private Equity is not really a "trade or business." That is, for retirement plan purposes, nothing should hcange with respect to the administration of your client's retirement plan (other than having a new boss). 

That is an interesting position.  Does the same apply (at least in their minds) if the PE has other businesses?  In my head, I'm likening it to the controlled group situation where there's a foreign parent who also owns other US-based businesses.  "Oh, it doesn't matter because we're not in the US."  Yeah, but your other company is...

Thanks to you both for the suggestions and ideas.

If you think about it, the PE firm has hundreds, if not thousands of different operating companies. If each of those companies is part of a "controlled group" with the PE firm, then you can see how one controlled group could potentially have thousands of plans. So, the position taken by PE is that the relationship between the PE and the operating company is not one of a trade or business, and therefore, no 414 controlled group exists. Each operating company continues with its plan. When I have dealt with PE counsel, this is the position they normally take (at least in my practice experience).

Some assert that an investment partnership’s ownership of an investee, without more, does not connect the partnership and the investee under I.R.C. § 414(c) if the investment partnership is not a trade or business.

Instead of trying to sort out difficult questions of law with likely difficulties about ambiguous facts, consider—with your lawyer’s advice—asking your client to instruct you about the assumptions your client prefers you to use in performing your services.

This is not advice to anyone.

On 5/23/2025 at 3:25 PM, Peter Gulia said:

Some assert that an investment partnership’s ownership of an investee, without more, does not connect the partnership and the investee under I.R.C. § 414(c) if the investment partnership is not a trade or business.

Instead of trying to sort out difficult questions of law with likely difficulties about ambiguous facts, consider—with your lawyer’s advice—asking your client to instruct you about the assumptions your client prefers you to use in performing your services.

This is not advice to anyone.

This is good advice. Let the client/PE tell you how they wish to be treated. OP is a TPA (I assume) and therefore, should follow directions of the "Plan Administrator."

That is definitely the road I'm taking.

I know that PE firms commonly take the "no CG" position.  If I were a TPA or consultant on such a situation, I would draft a CYA letter saying that the client represented to me that its legal counsel has opined that there is no affiliation for retirement plan purposes, I am proceeding on that basis at the direction of the client, and that I am not responsible for any ramifications if they are wrong.  If the TPA/consultant is a 3(16) fiduciary, be sure to carve this out of your responsibilities or refuse the engagement.

And if your inside counsel or outside counsel hasn’t supplied you with agreements and form letters to support the instructions and protections described, consider engaging Ferenczy Benefits Law Center with its 17 smart people.