Wording of Merger effective date

A lot of participation agreements include a space for you to enter the merger effective date of a participating employer's plan (e.g. in the event of the acquisition of another entity's stock and the merger of their plan into the main plan).  The challenge that is always there is we don't necessarily know exactly when the assets are moving (at least not in time to execute relevant documents). My preference has always been to have the merger effective date be coincident with the transfer of assets to simplify reporting and to not commingle the plans with 2 recordkeepers.

Would an effective date of "Coincident with the transfer of assets from the trustee or custodian of the ABC 401(k) Plan, which is expected to take place on or about September 15, 2025." be sufficient?

It is relevant from an administrative perspective.  I want Merging Plan;s 5500 to be based on Merging Plan's trust/custodian reporting.  I want Surviving Plan's 5500 to be based on Surviving Plan's trust/custodian reporting.  The merits of that approach can be debated but what is beyond dispute is that I prefer it this way, LOL.

For starters, iff Surviving Plan is audited, the auditors probbly do not have to worry as much about that stub period since it will not be included in their financial statements (Reviewing SOC1s as an example, testing distributions for another).

I agree with @david rigby.  Merger docs over AA/PA everyday.  

But I also agree with David Rigby?  I am trying to have the merger agreements coincide with the asset transfer?  I see a lot of merit to that approach. Perhaps I am on an island alone in that belief, but I am just trying to have the merger effective date coincide with the movement assets.  So my question is does my proposed language meet that objective?

Maybe there is something I am missing here, but what you guys are saying I agree with 100%.

5 minutes ago, RatherBeGolfing said:

Merger docs over AA/PA everyday.  

Just to clarify what does AA/PA stand for?

Typically the merger of plans is based on the transaction date of the sponsors of the two plans. I’ve never seen plan custodians (RKs or BDs) able to make a merger/transfer of assets happen on that date. Maybe you have. Just not the world I’ve inhabited. So having the plans merge on X date and the assets transferring within a reasonable period after that just hasn’t been a huge issue.

More typically in my experience, Parent buys Child. Child begins participating Parent's plan on 1/1/2026 (for example).  Child's plan merges over a few months later (after a short cooling off period and blackout notices etc).  Obviously the possibilities are endless but this seems to be the fact pattern I keep running into.  For the reasons I explained above I tend not to have a merger effective date of 1/1/2026. 

But perhaps that is where we are differing.  Probably you guys are merging the plans in on the same date Child begins participating in parent's plan (1/1/2026 in my example). I am treating the merger as a different event on a different date.

5 hours ago, austin3515 said:

Just to clarify what does AA/PA stand for?

Adoption Agreement / Participation Agreement.  

Like Bill said above, I'd go by the transaction date or effective date in the merger documents.  The trailing assets are not an issue as long as its done within a reasonable period following the merger.

19 hours ago, austin3515 said:

I am treating the merger as a different event on a different date.

How do you treat it if you get the assets transfer on more than one day?  If there is a residual a month or two later?

Well if the main transfer of assets hits on 9/15/2025, then my merger effective date based on the language I proposed above would be 9/15/2025, and the residual "income" would belong to the surviving plan.

20 hours ago, austin3515 said:

I want Merging Plan;s 5500 to be based on Merging Plan's trust/custodian reporting.  I want Surviving Plan's 5500 to be based on Surviving Plan's trust/custodian reporting.  The merits of that approach can be debated but what is beyond dispute is that I prefer it this way, LOL.

Acquisitions of companies with retirement plans have occurred since retirement plans have been in existence. 

Business merger transactions are different from plan mergers and there are long-standing best practices for completing these transactions correctly and accurately.

Except in very rare scenarios, corporate transactions will precede or be simultaneous with - but not follow - the plan merger.

When all parties - business executives, legal counsel, plan fiduciaries, trustees, custodians, recordkeepers, plan accountants... - are informed and execute an agreed-upon plan of action, the process flows quickly and accurately.

The motto "All for one, and one for all" reflects the spirit of cooperation among the businesses and its service providers.

The saying "The tail wags the dog" is a recipe for disaster.

22 hours ago, austin3515 said:

A lot of participation agreements include a space for you to enter the merger effective date of a participating employer's plan (e.g. in the event of the acquisition of another entity's stock and the merger of their plan into the main plan).  The challenge that is always there is we don't necessarily know exactly when the assets are moving (at least not in time to execute relevant documents). My preference has always been to have the merger effective date be coincident with the transfer of assets to simplify reporting and to not commingle the plans with 2 recordkeepers.

Would an effective date of "Coincident with the transfer of assets from the trustee or custodian of the ABC 401(k) Plan, which is expected to take place on or about September 15, 2025." be sufficient?

Is the bottom line here, what I want to do makes no sense?  That's the message I am getting.  If this makes no sense I'd be curious to here why this approach makes no sense. It doesn;t sound unreasonable to me.

1 minute ago, austin3515 said:

Is the bottom line here, what I want to do makes no sense?  That's the message I am getting.  If this makes no sense I'd be curious to here why this approach makes no sense. It doesn;t sound unreasonable to me.

@austin3515 If the merger effective date is already spelled out in the merger documentation, I don't see the point of using the transfer date as the effective date of the merger in the AA.  I see the merger and the transfer as separate issues, and to me it is natural that the transfer date follows the merger date.  

Perhaps I'm missing one thing though...  Do you already have plan merger documentation at this point or are you generating that documentation?  

6 minutes ago, RatherBeGolfing said:

If the merger effective date is already spelled out in the merger documentation, I don't see the point of using the transfer date as the effective date of the merger in the AA.  I see the merger and the transfer as separate issues, and to me it is natural that the transfer date follows the merger date.  

Exactly!  The date(s) on which assets move (by the way, there might be no requirement to any such asset movement), is a matter for the recordkeeping (ie, documentation) of the trust.  It has nothing to do with any effective date of plan merger.  It is a mistake to conflate these two items, and would (likely) result in incorrect information being attached to the 5500, audit report, participant statements, etc.

I can't figure out where we are all getting out of line here.  We all agree that the merger agreement controls.  I am writing the merger agreement.  For our documents, you just enter the merger effective date in the participating employer agreement (Corbel Prototype).  What I am asking about is language in the effective date for the merger agreement and whether I can just say "coincident with receipt of the wire transfer."  Everything you guys are saying I agree with.

I definitely think it is me who is missing something here... 

Austin:  Of course the merger agreement governs, and of course you can write the agreement as you see fit.  I think the people here are expressing concern that being non-specific on the date ("when assets transfer") and the inadvisability of delaying the merger of the plans beyond the merger of the entities.

As far as a non-specific date, consider 1) that may require additional audits (each "plan" requires it's own audit if large enough; 2) with various "puts" and delayed transfers for a variety of funds, the "last" asset transfer date may be 1, 5 or even 10 years out; and 3) each plan will require it's own 5500.....  There are other issues as well.

Most acquirers I've worked with generally want the newly acquired employees participating in "their" plan as soon as they become employees (and if you don't, then you have to deal with contributions to two plan, aggregated or not testing issues and the like) - so if you don't merge the plan, each must be amended appropriately to handle the other (hopefully) frozen plan.  I can't tell you how many times we've had operational errors because of failures to properly end participation in one plan when allowing it in another.

Reconciling assets held away is easy compared to the complexities that can arise if NOT merging the plans "legally" even if there is a delay in asset transfers....

I guess our experiences are quite different.  In my world, the acquired entity is rarely able to participate immediately in buyers plan.  Often times the employees are told of the acquisition immediately prior to the acquisition (doesn't leave much time to enroll and make investment elections, even if the RK was able to get that new entity set up in time). And the administrative hurdles of adding new entities as participating employers means generally a month is lighting speed to get them onboarded (Census data, notices, banking info).  These things take time in my world and only rarely take place immediately after the acquisition (Even if the sellers plan is terminated).

And I am familiar with puts and 5 annual installments and the like, and I understand all of that.

But this is an eye opener that literally no one sees what I am doing as the least bit productive or helpful.  I'll do some more research.

55 minutes ago, austin3515 said:

Often times the employees are told of the acquisition immediately prior to the acquisition (doesn't leave much time to enroll and make investment elections, even if the RK was able to get that new entity set up in time).

Music to my lawyer ears....  I see a VCP filing in the offing....  🤣

For what?  This is a stock sale, the have the 410b6C transition, and the entity has not yet adopted the Plan?

20 minutes ago, austin3515 said:

For what?  This is a stock sale, the have the 410b6C transition, and the entity has not yet adopted the Plan?

In my 43 years in the industry, I've lost count of the number of time the acquirer's plan doesn't exclude employees of a wholly owned sub, and the target's plan doesn't exclude employees of other members of the controlled group (i.e. the parent and any other entities under that umbrella) meaning, all employees get to participate in both plans - and then operational failure despite the 410(b)(6) transition exemption.  Many, many other issues arise in these situations...  Many....

In the last 10 years alone, we've done a dozen or so VCP on issues related to NOT "RTFD"ing the plans PRE-ACQUISITION.....

Oh well sure if there is someone who doesn't know what they are doing you can get into trouble.  What I find shocking is that lawyers who do mergers and acquisitions for a living will frequently just ignore this topic altogether.  I get it, there are a lot of moving pieces but bring in an ERISA attorney to focus on this (I mean if there isn't a solid TPA of course!).

1 minute ago, austin3515 said:

Oh well sure if there is someone who doesn't know what they are doing you can get into trouble. 

And that would be the vast majority of those who are running their businesses and not relying on the pros for guidance in a very complex situation involving their retirement (and other benefit) plans.  Most M&A attorneys have no ERISA expertise and many don't have access to that expertise.  Only the larger law firms have in-house ERISA departments.  They advise their clients to "seek guidance from their ERISA counsel" when most have none, or simply advise to "terminate the plan" before the aquisition" which results in their client acquiring a bunch of new employees with new bass boats and pickups, but no retirement savings (costing them an arm and a leg as they get older, and require more expensive medical care and no ability to actually retire.) .... There are some interesting studies on the long term costs to employers of plan leakage.

22 minutes ago, MoJo said:

And that would be the vast majority of those who are running their businesses and not relying on the pros for guidance in a very complex situation involving their retirement (and other benefit) plans.  Most M&A attorneys have no ERISA expertise and many don't have access to that expertise.  Only the larger law firms have in-house ERISA departments.  They advise their clients to "seek guidance from their ERISA counsel" when most have none, or simply advise to "terminate the plan" before the aquisition" which results in their client acquiring a bunch of new employees with new bass boats and pickups, but no retirement savings (costing them an arm and a leg as they get older, and require more expensive medical care and no ability to actually retire.) .... There are some interesting studies on the long term costs to employers of plan leakage.

I did an M&A earlier this with a handful of entities and two plans.  We probably had at least 10 calls to iron out what everyone needed in the paperwork.  There were at some points 20+ lawyers on a call, with representatives from buyer, seller, third party benefits coordinator, and a couple of ERISA attys as hired guns for the transaction.  Everyone made some changes to the plan merger paperwork, and nothing was signed until approved by all.

It was a PITA to get done between all parties in a very short period of time, but a breath of fresh air to see the engagement in plan matters from the M&A folks.

Many years back in my actuarial career, I was employed as a benefits administrator for a large corporation.  The parent company was (constantly) involved in buying or selling subsidiaries.  Our in-house attorneys were kind enough to invite me to read a draft buy-sell arrangement.  I offered several (six or eight) different changes they had never thought about, concerning various benefit programs, on both sides.  This included pointing out that this or that change might have some cost, but any additional cost was likely to be very little, and could be worth much more in positive PR.  It made an impression, and I was invited to contribute when later M&A stuff arose.  While it may have seemed small, I've been proud of helping those attorneys, who took that advice forward into their own later careers. 

The lesson (similar to what RBG says above):  it's important to get multiple types of expertise involved at the beginning, because some omissions (i.e., mistakes) cannot be easily remedied after the transaction is closed.  And pay attention to effective dates.

15 hours ago, RatherBeGolfing said:

I did an M&A earlier this with a handful of entities and two plans.  We probably had at least 10 calls to iron out what everyone needed in the paperwork.  There were at some points 20+ lawyers on a call, with representatives from buyer, seller, third party benefits coordinator, and a couple of ERISA attys as hired guns for the transaction.  Everyone made some changes to the plan merger paperwork, and nothing was signed until approved by all.

It was a PITA to get done between all parties in a very short period of time, but a breath of fresh air to see the engagement in plan matters from the M&A folks.

Obviously a larger client with resource.  Best way to do it, is as you described...

On the other hand, we've actually had "handshake" acquisitions, where with one, when we asked if it was a stock purchase or asset acquisition (after it occurred), was asked back "which way is better."  No joke.