Page 43 - American Vision Partners
P. 43
Retirement
XYZ Corporation – Acquisition Review Report
Pre-Close Considerations XYZ Corporation – Acquisition Review Report
There are two approaches regarding the continuation of defined contribution benefits
Option 2: Company Terminates Plan / Allows Employees to Participate in Buyer’s Plan
to the Seller’s employees, either assume or maintain/merge the existing plan or terminate the
• In a stock purchase, the Plan must be terminated prior to close to avoid assuming
existing plan prior to close. liabilities (and becoming the plan sponsor by way of stock acquisition).
• If the Plan is terminated, participation ceases immediately upon close of the transaction.
Option 1: Buyer Assumes or Merges the Existing Plan
• Participants will be required to make individual distribution elections (trust to trust
• The buyer assumes all known and unknown liabilities associated with the plan, as well as
transfer is not available). Participants will have the ability to receive their account
the administrative and fiduciary responsibilities for continuing the plans’ operations. balances in a taxable distribution, or to transfer their balances to an IRA or to the
• The 410(b) Coverage Transition rule allows a “grace” period wherein coverage testing
Buyer’s Plan.
may be considered independently for the plan year in which the transaction occurs and
• Credit for prior service is required for eligibility and vesting in a stock purchase.
the following plan year (assuming coverage is met prior to the transition and no • Credit of prior service is not required in an asset purchase but may be provided.
significant changes). For a mid-2020 acquisition, the coverage transition rule would
• Any contributions due to the Plan must be funded and forfeitures must be allocated or
apply through December 31, 2021. The coverage transition rule applies to both asset used prior to termination.
and stock purchases. • All participants are fully vested at plan termination.
• If the Buyer assumes the current plan, the Plan continues post close without • The current plan sponsor must complete the process to fully terminate the Plan and a
interruption. final Form 5500 Filing and Audit Report (as required) must be completed. Purchase
• If Buyer merges the Plan into their current Plan, assets transfer trust to trust from Agreement should detail responsibility for termination and management through filing
Seller’s to Buyer’s Plan. of Final Form 5500
• By assuming or merging the Seller’s Plan, participants are provided a seamless transition
• The buyer assumes no liability for the old plans.
with little interruption to participation and continuity of retirement savings. Participant
loans typically continue without interruption. Post Close Considerations-
• Participants do not have the option of requesting a distribution of their account balance
based on the transaction. The 410(b) Coverage Transition Rule allows for a period of time (end of plan year
following the year of the transaction) wherein the Plans may be treated independently for
• Credit for prior service (eligibility and vesting) is required to be provided in the merged
purposes of coverage testing. The transition rule would end on December 31, 2021 for a mid-
Plan for all employees.
2020 close of the transaction. While the Plans may be treated independently for coverage
• A final Form 5500/Audit will be required when the Plan is merged for the disappearing
purposes, action is required to ensure that the Plan remains compliant and that fiduciary
Plan.
responsibilities are met. When the transition period ends, the Plans can remain separate, but
must complete consolidated testing.
4
5
American Vision Partners — Lockton: A collaborative Healthcare Practice review 43 Lockton Companies
XYZ Corporation – Acquisition Review Report
Pre-Close Considerations XYZ Corporation – Acquisition Review Report
There are two approaches regarding the continuation of defined contribution benefits
Option 2: Company Terminates Plan / Allows Employees to Participate in Buyer’s Plan
to the Seller’s employees, either assume or maintain/merge the existing plan or terminate the
• In a stock purchase, the Plan must be terminated prior to close to avoid assuming
existing plan prior to close. liabilities (and becoming the plan sponsor by way of stock acquisition).
• If the Plan is terminated, participation ceases immediately upon close of the transaction.
Option 1: Buyer Assumes or Merges the Existing Plan
• Participants will be required to make individual distribution elections (trust to trust
• The buyer assumes all known and unknown liabilities associated with the plan, as well as
transfer is not available). Participants will have the ability to receive their account
the administrative and fiduciary responsibilities for continuing the plans’ operations. balances in a taxable distribution, or to transfer their balances to an IRA or to the
• The 410(b) Coverage Transition rule allows a “grace” period wherein coverage testing
Buyer’s Plan.
may be considered independently for the plan year in which the transaction occurs and
• Credit for prior service is required for eligibility and vesting in a stock purchase.
the following plan year (assuming coverage is met prior to the transition and no • Credit of prior service is not required in an asset purchase but may be provided.
significant changes). For a mid-2020 acquisition, the coverage transition rule would
• Any contributions due to the Plan must be funded and forfeitures must be allocated or
apply through December 31, 2021. The coverage transition rule applies to both asset used prior to termination.
and stock purchases. • All participants are fully vested at plan termination.
• If the Buyer assumes the current plan, the Plan continues post close without • The current plan sponsor must complete the process to fully terminate the Plan and a
interruption. final Form 5500 Filing and Audit Report (as required) must be completed. Purchase
• If Buyer merges the Plan into their current Plan, assets transfer trust to trust from Agreement should detail responsibility for termination and management through filing
Seller’s to Buyer’s Plan. of Final Form 5500
• By assuming or merging the Seller’s Plan, participants are provided a seamless transition
• The buyer assumes no liability for the old plans.
with little interruption to participation and continuity of retirement savings. Participant
loans typically continue without interruption. Post Close Considerations-
• Participants do not have the option of requesting a distribution of their account balance
based on the transaction. The 410(b) Coverage Transition Rule allows for a period of time (end of plan year
following the year of the transaction) wherein the Plans may be treated independently for
• Credit for prior service (eligibility and vesting) is required to be provided in the merged
purposes of coverage testing. The transition rule would end on December 31, 2021 for a mid-
Plan for all employees.
2020 close of the transaction. While the Plans may be treated independently for coverage
• A final Form 5500/Audit will be required when the Plan is merged for the disappearing
purposes, action is required to ensure that the Plan remains compliant and that fiduciary
Plan.
responsibilities are met. When the transition period ends, the Plans can remain separate, but
must complete consolidated testing.
4
5
American Vision Partners — Lockton: A collaborative Healthcare Practice review 43 Lockton Companies
