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Don’t Overlook the 401(k) Plan in a Merger

Don’t Overlook the 401(k) Plan in a Merger

A business merger can be stressful for all involved. In addition to educating and reassuring employees and clients, leaders must exercise proper fiduciary risk management. During the planning phase, it’s important to consider 401(k) plans, which fall under the buyer’s responsibility once the acquisition is complete.

For plan sponsors at the acquiring company, it’s crucial to thoroughly investigate the seller’s 401(k) plan to determine whether you want it terminated or merged into your own. Here are a few tips for how to handle a 401(k) during a business merger.

When to Adopt

During an acquisition, many businesses choose to operate two separate 401(k) plans to ease employees into the new business. Others choose to merge plans, which can create complications, including that any liabilities may fall under the responsibility of the acquiring company’s leadership. If a substantial portion of the seller’s employees remain, this might be the easiest way to keep everyone happy, but carefully review all plan documents to fully understand the risks of keeping the seller’s plan.

When to Terminate

In many cases, termination is the easiest option. However, that needs to be done well before the sell date. The seller must terminate the plan prior to finalizing the sale, which is why you should strategize as soon as possible. If the transaction occurs with the 401(k) plan still in place, your only options will be to freeze the plan, merge it, or operate it in addition to your own 401(k) while you take measures to see if you can terminate it.

Part of good fiduciary risk management is covering all of your bases during an acquisition or merger. But a seller’s 401(k) plan can easily be forgotten. When an acquisition is on the horizon, it’s important that businesses quickly plan how to handle 401(k) plans to avoid costly issues.

 


 

FiduciaryFirst is a Maitland, Florida based company that provides independent retirement plan fiduciary support with a holistic approach. Our comprehensive Prudent Fiduciary ProcessSM (PFP) enables employer groups to address fiduciary standards. For more information about pension consulting call us at 866-625-4611 or contact us online.

Tracking Number: 1-684291

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

 
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