Impact of Mergers & Acquisitions on Retirement Plans

Transcription

1 PSCA 67th Annual Conference The Turnberry Isle Miami, Florida September 17, 2014 Impact of Mergers & Acquisitions on Retirement Plans Richard P. McHugh 1

2 Mergers and Acquisitions: Today s Challenges and Opportunities Retirement plan issues increasingly require more attention in the context of mergers and acquisitions. The complexity of laws governing retirement matters and the volume of plan assets in the private retirement plan system compel attention. 2

3 Mergers and Acquisitions: Today s Challenges and Opportunities Retirement plan issues are -- or certainly should be -- looked at early in corporate transactions That review often leads to significant contract provisions. Choices arise in the context of transactions, ranging from whether asset transfers are advisable to whether distributions from plans may be made. 3

4 Mergers and Acquisitions: Today s Challenges and Opportunities This session attempts to do two things: v Review best practices regarding retirement plans in the context of mergers and acquisitions from a contracting point of view. v Focus on issues typically confronted in these transactions that can affect retirement plans. 4

5 Mergers and Acquisitions: Today s Challenges and Opportunities Important to consider retirement plan issues early in negotiations because this often is the point of greatest leverage. v Concern usually more acute from the point of view of the buyer. v Pay me now or pay me later! 5

6 Contract Negotiations The Big Three! Stock v. Assets Parties Goals Types of Plans 6

7 Contract Provisions Sellers Representations Affirmative Covenants Disposition of Benefit Plan Liabilities Negative Covenants Possible 7

8 Contract Provisions (Continued) While variation is normal, retirement plan provisions include some or all of the following: v Representation by seller as to the sponsored plans (seller compelled to provide copies of plans and related documents). Ensure disclosure not limited to benefit plans as defined under ERISA, but also extends to other types of compensation arrangements. 8

9 Contract Provisions (Continued) Representation by seller as to compliance with applicable laws, including reporting obligations. Representations by seller about continuing or potential termination liability, including pension plan underfunding and multiemployer plan withdrawal liability. Representations by seller regarding the disposition of welfare plan liability, including COBRA coverage, and the existence of any retiree obligations. 9

10 Contract Provisions (Continued) Representations by the seller regarding operational compliance with various Internal Revenue Code and ERISA requirements. Representations by the seller regard satisfaction of all benefit liabilities Affirmative covenants as to the disposition of benefit plan obligations. Any applicable negative covenants (e.g., maintenance of plans through closing without change). 10

11 Disposition of Benefit Plans Plan Termination v Consider timing issues, particularly with 401(k) plans Plan Merger v Consider cut-back issues Plan to Plan Transfer Current Distribution of Benefits Plan Continuation by Buyer Frozen Plan 11

12 Qualified Plans Importance Of Due Diligence Successor Employer Risks Participant Loans Full Vesting on Plan Termination Coordination of Salary Deferral Limits Plan Coverage and Non-Discrimination Requirements Multiemployer plan issues 12

13 Qualified Plans (Continued) Collective Bargaining Concerns Transitional Services Issues Operational Defect Issues Multiple Employer Plan Option Employer Stock v Stock drop concerns Required Contribution Obligations Plan Asset Considerations 13

14 Non-Qualified Plans IRC Section 409A Issues v Potential for considerable tax exposure Plan Funding Issues 14

15 Richard P. McHugh (202)

16 Make sure you have finished speaking before your audience has finished listening. Dorothy Sarnoff - 16