The Fate of Qualified Retirement Plans During a Merger or Acquisition

November 21, 2018
Hall Benefits Law, LLC

What happens to qualified retirement plans when companies go through a merger or acquisition? That may depend on the answers to the following questions:

Is the plan a qualified retirement plan?

A retirement must comply with the Internal Revenue Code in order to be considered qualified. Not only must the plan documents meet IRS requirements, but the company must follow the plan’s provisions. When in doubt, companies may consider applying to the IRS for qualification through the IRS determination letter program. The determination letter may approve the plan or state why the plan is not qualified.

Is the deal a merger or an acquisition?

The type of transaction generally drives the treatment of retirement plans during a transaction like a merger or acquisition. Although the terms are often used simultaneously, they are different.

  • A merger occurs when two separate entities unite to create a new organization.
  • An acquisition happens when one company acquires and becomes the new owner of another company.

Negotiations typically include discussions about employee benefit plans, whether the transaction is a merger or an acquisition.

How are qualified retirement plans handled during a merger?

When two companies merge, it is possible that both companies had qualified retirement plans. The new company formed by the merger may handle the plans in several ways:

  • The retirement plan will be sponsored by the post-merger company.
  • The two plans may also merge into one plan that covers all employees.
  • If each company has a plan, they may terminate one or both. The new company would either have no retirement plan, add participants of the terminated plan to the plan that remains, or create a new plan.

How about during an acquisition?

As with a merger, the parties need to consider the impact of an acquisition on qualified retirement plans. The acquiring entity may assume the acquired company’s plans. Other options include merging the seller’s plan into the buyer’s existing plans or distributing plan assets.

Mergers and Acquisitions Affect Qualified Retirement Plans

Remember the IRS and ERISA when adding new employee benefit or changing or terminating an existing one. Failure to properly analyze and handle qualified retirement plans may lead to violations of federal law, with companies incurring monetary six and seven figure penalties. Consult an attorney about the legal issues arising from a merger or acquisition.

At Hall Benefits Law, we work extensively with employee benefit plans, both before and after plans are established. Please call 678-439-6236 to discuss your concerns with an experienced attorney. Our website contains more information about our firm, a Contact Form, and free resources for your review. From our home office in Georgia, we assist clients throughout the United States, from New York to California.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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