Loans options in M&A

I am looking for a creative solution around repayment of loans in a spinoff.  Imagine I have an organization where a group of employees are part of divestiture.  The selling organizations loan program does not allow for terminated employees to continue making payments, nor do they want to open this feature up to the entire population.  The purchasing organization does not have a loan program, nor do they want to create one. 

The best solution would be for one of the parties to adjust / create a loan program.  That seems to be a tall order even though it makes the most sense.

So I am looking for a creative solution where the entire group of employees can be packaged together so they continue making loan repayments.  If you have any recommendations, please let me know. 

What is the impediment to identifying them, and only them, for one of the solutions you specified?  HCEs?  The program for the new employer would simply be a payment program, which would not be very burdensome.

For the selling organization, it is a simple as the ER does not want to open the loan program to all terminated employees.  There appears to be no way to isolate this group as the only recipients to participate. 

For the purchasing organization, I have not been briefed on why they will not allow a loan program as option would be beneficial to keeping the new employees satisfied.

Somebody should ask the new employer to think about delivery of the message to the new employees that they are so unimportant that the new employer was unwilling to make a reasonable accommodation to avoid financial hardship for them.

And I suppose that the new employer is not really interested in finding out what would be necessary to make it work. It does not involve adopting a loan program.

It really limits the options if (a) the seller is not willing to accommodate, and (b) the buyer is not willing to accommodate. Those are pretty tough facts.

For what it's worth, I think the seller's loan policy could be revised to open up post-termination repayment to only those employees impacted by the divestiture/spinoff. They should be able to objectively determine that group. As long as it's not favoring HCEs I don't see why that would be a problem. Then the buyer just adds a payroll deduction for the employee. 

I've also seen bridge loans used, but that requires the buyer to have a 401(k) from which the participant can take a new loan.

The employees could take a personal loan (from the employer or a third-party), repay the 401(k) loan, then have a loan outside the plan entirely.

Or the buyer could allow existing loans to transfer, while continuing their policy of not allowing new loans.

The only two solutions we've seen are 1) open up a "limited" loan program in the buyer's plan solely for the purpose of allowing repayment of existing loans; or 2) have one of the entities "loan" money to the participants with loans to pay off those loans, and then pay back the entity outside of the plan (rarely happens - but I've seen it done - especially if it involves "talent" they want to keep happy).

Is it clear that the powers that be - i.e., the people running the deal, as opposed to merely those involved in plan administration - understand what is going on here?  If someone told them "by the way, all of these people with outstanding loans are going to get screwed" and explained why, I would be surprised if they didn't force some kind of fix here. 

This one may be obvious but unhelpful: The employer could pay off the loan or at least enough to offset the taxes caused by default. I've seen the latter done once where for some reason the circumstances just didn't align for loan rollovers (although I don't for the life of me remember why now). It was only 2-3 employees and a few thousand dollars, which in the context of a multimillion dollar acquisition was an acceptable cost. 

One more observation on top of my comment.  Based on my experience working on m&a transactions, my guess is that one of the goals - advocated by both the people running the deal and the HR staff on the receiving end - is to make sure that this is as seamless as possible for the employees moving over, in which case they will absolutely freak out if they hear about this.  

The buyer would not really be starting a loan program. It would just allow the employees it hires to roll their accounts, including the loans, into the buyer's plan. Thereafter, yes, the buyer's payroll function and record keeper would have to service the loans until they are paid off or the employees terminate and have to pay off or get 1099-R'd then.