A merger or acquisition comes with a long list of questions and considerations, and how to handle relevant retirement plans is often near the top. The key deciding factor for options in handling a Qualified Retirement Plan is the type of purchase used to acquire the company. Any conversation on the topic has to begin with whether the transaction was a stock purchase, or an asset purchase.

Stock Purchase – In a stock purchase of a company, the buyer acquires the Qualified Retirement Plan (the Plan) of the seller. If the buyer does not wish to acquire the Plan in the sale, the Plan must be terminated prior to the date of the purchase. Once the stock is acquired, the company has two options: merging the Plan into the buyer’s existing plan or continuing the Plan as it currently is being administered. In a merger, employees of the purchased company become participants in the buyer’s plan and their balances are transferred into the buyer’s plan. Normally, past service in the purchased company is recognized. There is not a distributable event so participants in the seller’s plan do not become 100% and are not allowed to take a distribution. If the Plan continues to operate separately, it will need to be considered in non-discrimination testing with the buyer’s plan. The plans should be reviewed to make sure similar benefits are being offered.

Asset Purchase – In an asset purchase, the seller’s Plan is not acquired as part of the purchase. Normally, the Plan is terminated, all participants are made 100% vested and balances are distributed. If participants are hired by the buyer, they are considered new employees. They may be allowed to rollover their balances into the buyer’s plan if such plan allows.

Plan Merger – When merging retirement plans, the merger cannot reduce or eliminate protected benefits. This is referred to as the anti-cutback rule. Protected benefits are accrued benefits, early retirement benefits, retirement type subsidies and optional forms of benefits. One example of an optional form of benefit would be annuities as a distribution option.

Plan Termination – When terminating a plan, make sure all participants are notified and all assets should generally be distributed within one year of the plan termination date.

Notices – Keep in mind that if you are terminating the plan or merging a retirement plan, there are required notices to be sent to all participants. In the case of a Defined Benefit Plan, the PBGC will also need to be notified. Finally, confirm the final Form 5500 has been filed for the Plan that terminated or merged into the buyer’s plan.

For more information on how to handle Qualified Retirement Plans in the case of a merger or acquisition, please contact MCM Assurance Principal Kathy Doughten, ERPA, QPA via e-mail or phone (502.882.4390).