Advisor Connect

Mergers and Acquisitions

Everyday companies large and small make decisions to combine forces. In fact, in 2017, more than 15,000 companies announced a merger or an acquisition. And it probably won't surprise you, but M&A activity spans all major industry sectors and nearly all geographies. For some, it's a strategy for growth. For others, it's a defensive move to survive as markets and business requirements change. Whatever the motivation, there are almost always impacts on retirement benefits.

Think about it: companies merge - they both have retirement plans. Now what? Well, the short answer is that it can be complicated as many factors need to be considered - and once the companies arrive at a course of action, there's much work to be done.

While we won't get into the nitty gritty of the issues here, there are a couple of important things every advisor needs to know to help start the conversation. After all, before we can consult on the right answers, we really need to focus on asking the right questions. So here goes:

The essential question is - is this an asset purchase or an entity purchase? In other words, is the acquiring company buying the assets of the target company or are they buying the entity itself. In an asset purchase, the acquiring company generally doesn't assume the assets and liabilities of the other company. That would include, of course, responsibility for the target company's retirement plans.

In an entity purchase, as you'd expect, the target company becomes part of the acquirer's organization. In that case, the acquirer generally does become responsible for the target company's retirement plan.

It's fairly common that the parties intend to either terminate the target company's plan prior to the acquisition or to merge it into the acquiring company's retirement plan. As in everything to do with mergers and acquisitions, the devil's in the details because both parties have serious fiduciary and practical responsibilities to consider.

The due diligence checklist of issues to research, assess, and report on before and after the merger event is well beyond the scope we can cover here. It includes primary areas of responsibility around assessing the target company's plan quality, especially to make sure it doesn't have operational or administrative issues that could trigger future audits. It also includes a careful consideration of features and protected benefits that can't be eliminated, a review of participant rollover and distributions rules and, of course, plan termination rules.

The good news is - you've got expert partners ready to help you understand these complex issues and serve the interests of clients who find themselves merging or acquiring others. When the time arises to learn more, don't hesitate to reach out. We're here to help.


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