Understanding your client's needs in a merger

Mergers may be sleeping giants for those involved, but how benefit plans are addressed in the surviving company may feel like a decision with a deadline. This pressure may also be present for clients facing reorganization in bankruptcy.  Financial advisors can get ahead of their client’s pressure points in reorganizations by looking to the changes in not just reports, by looking for the documents and information their clients may need.

In order to get ahead, advisors first need to know what type of transaction is happening. Is it a stock or asset sale? Is the client’s company the successor in the merger (as named in the asset purchase agreement)? Some benefits attorneys caution that even with an army of accountants and corporate finance attorneys structuring a deal, the implications of benefit plans (continuation, changes, etc.) can get missed.  Keeping an eye on that can help clients during the merger process. The key point for advisors is that negotiating the transfer of the benefit plans from one company to another may be more lengthy than the client might have planned.

Financial advisors can help clients by having a list of the nontraditional employees who are currently enrolled in their plans. This may include employees who are less than full time or are seasonal. It may also be helpful to be clear on whether the status of independent contractors might change in the merger, as that could shift their eligibility to participate in the plan. This list, and other information like it, is usually requested as part of the due diligence phase of the acquisition.

In due diligence, the company that plans to make the purchase of assets examines all documents (and physical plants) it can to ensure it has accurate information to determine potential risks and benefits of the purchase.  This due diligence phase includes examining employee benefit plans.  And since there could be implications for the plans, an advisor may want to be proactive and collect information on votes and voting procedures for how to modify the plans, if needed. This may include identifying who the administrators are. This could also involve locating past minutes of board meetings on votes to change plans or similar discussion points. It could be helpful to have all amendments to the plans (or proposed versions) as well, that include stock options, bonuses, and other forms of profit sharing.  This search should also include summary plan descriptions as well.

Wherever possible, an advisor can be helpful by finding the audits of the plan as well as actuarial information that underlies the decisions on the plan. This may also involve finding information on the contractors used by the plan – including any third party administrators.

Often questions about employee benefit plans that are raised in the due diligence plan involve more than identifying the plans and noting the past history of changes to them, as discussed above.  This also includes any IRS Determination Letters (from Form 550 filings) that approve the form of the plan and the plan’s language.  This also may include the Form 550 applications and any supporting documents. Also on the potential list of documents that an advisor might need to help marshal are safe harbor notices, fee applications and other disclosure information.

An advisor could also be proactive in gathering testing and valuation reports for whether a plan passed (or failed) IRS tests for qualification.  Along similar lines, information about Department of Labor investigations and resolution (or “No Action” Letters) of those investigations.  This should also include any requests for information from other government agencies as well. Finally, advisors could gather all marketing communications about the benefits plan that were used in the six year time frame.