M&A Employee Benefit Plan Considerations

As institutions delve into the world of mergers and acquisitions, serious consideration needs to be given to the treatment of the respective employee benefit plans for both the target and the acquirer. There is potential risk (and heartburn) in the event the existing plans are not handled appropriately. Regardless of the type of plan, the following is a list of questions (albeit incomplete) that should be carefully considered during a merger/acquisition:

  • What type of transaction is occurring between the institutions?
    (An asset sale has different implications for the plans than a stock sale)
  • Will the existing plans be merged into one plan or will one be terminated and the funds be transferred or rolled over into the surviving plan?
  • Which plan will be the surviving plan and will the other plan need an audit or audits through the date of the merger/termination? If a limited scope audit was previously performed, can certification of all plan assets be obtained from one trustee/custodian or will certifications from multiple trustees/custodians need to be obtained?
  • What tax forms need to be filed and when are they due?
  • What are the key characteristics (definition of compensation, eligibility provisions, allowance of loans to participants, rollover provisions, etc.) of each plan and are any changes allowed?
  • What is date the plans will be merged/terminated and who has legal responsibility for the transfer/distribution of plan assets?
  • Who will be responsible for ensuring all required correspondence is sent to plan participants?
  • What party or parties will be responsible for ensuring all assets are properly transferred and reconciled (on a plan level and participant level), vesting schedules are preserved (along with proper credit for years of service), and all optional plan benefits are identified and preserved?
  • Are both plans qualified or is there a potential issue of non-qualification in one of the plans which may harm qualification of the surviving plan?
  • Is there proper documentation (approval by the fiduciaries) for the merger or disposition?
  • What is the correct financial statement (and Form 5500) reporting for each plan?
  • Will there be a change in service providers (i.e. record-keeper, trustee/custodian, actuary) and where will pertinent records be kept?

Consultation with plan attorneys and accountants will assist in answering these questions timely and appropriately. In addition, proper consideration of these (and other) questions will help ensure a smooth transition (and fewer headaches!) for participants, plan administrators, trustees, and TPAs.

For assistance with answers to your employee benefit plan questions, please don’t hesitate to contact the experts at Fortner, Bayens, Levkulich, & Garrison, P.C.