In Corporate Mergers, Retirement Plan Considerations Should be Front-and-Center
By Mark Johnson, Ph.D., J.D.


When an employer merges with another company, one of many repercussions in the transaction will be the impact on the design and management of qualified retirement plans.


According to the IRS, there are generally three routes the new company can take with qualified plans:


1.) The post-merger company becomes the new plan sponsor: This happens when only one company in the merger had a retirement plan, and it chooses to become the new sponsor of the plan. More than likely, the terms of the existing plan will stay in place, and therefore, mostly affect the employees of the other company in the merger.


2.) One company merges its retirement plan with the other company’s plan: This results in the post-merger company having one retirement plan encompassing all employees and may result in some changes like investment choices. The merger may not violate the anti-cutback rule; therefore, all protected pre-merger benefits stay in place including accrued benefits, early retirement benefits, retirement-type subsidies, and optional forms of benefit.


3.) Either one or both companies terminate their retirement plan: They can opt for no retirement plan; for one company terminating its plan and allowing its participants to join the other company’s plan; or for both terminating their plans and starting fresh with a new plan.


Multiemployer retirement plans may also be involved in a plan merger or spin-off only if certain qualifications—presented under ERISA §4231—are met. The Pension Benefit Guaranty Corporation (PBGC) has very straightforward guidelines in how to move forward during a plan merger.


Plan sponsors of all multiemployer plans involved in the merger or transfer must jointly file a notice with the PBGC 45 days before the transaction. This timeframe was recently shortened from 120 days in cases where no compliance determination is requested.


Information about the plans and their sponsors, the transaction, and the proposed effective date must be included in this notice. In addition, a copy of each provision must be provided showing that accrued benefits will not be reduced immediately after the effective date, a special actuarial valuation has been performed, and that the benefits of participants are not reasonably expected to be suspended due to plan insolvency.


Forms involved in a merger of multiemployer plans may include:


• Form 5310-A: Notice of Plan Merger or Consolidation, Spin-off, or Transfer of Plan Assets or Liabilities that may be a required filing with the IRS along with a user fee within a required timeframe.


• Form 10: Post-Event Notice of Reportable Events filed with the PBGC. The PBGC, which will then review and analyze the merger and plan, could possibly challenge the merger.


• Form 10-Advance: Advance Notice of Reportable Events filed with the PBGC


The PBGC has “safe harbor” guidelines for mergers or spin-offs to encourage self-correction of premium underpayments. Plans may qualify for “safe-harbor” relief from late payment penalty charges under the PBGC’s current premium penalty policy. The PBGC has also proposed updates which would allow plans to forego many of the required reporting obligations if their sponsors meet “financial soundness” criteria.


Corporate transactions can take many forms from stocks and assets sales, to mergers, spin-offs and bankruptcies. The complexities involved in these transactions make it crucial to evaluate—early in the preparation process—the design and structure of the pension or retirement plan in the post-merger era. This strategy will ensure that all issues and considerations, including hidden employee benefit liabilities and safe harbor rules, are reviewed and handled well in advance of the transaction so there will be no surprises afterward.


September, 2014




ABOUT THE AUTHOR: Mark Johnson, Ph.D., J.D.

Mark Johnson, Ph.D., J.D., is a highly experienced ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances.


ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and does not engage in the practice of law.


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