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Retirement Plans Risks on M&A Deals


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No matter the reasons for mergers and acquisitions, it's essential to be careful about potential problems with the seller's retirement plan.

To avoid issues after the deal is done, it's best to review the plan early and address any concerns. By doing this, buyers can identify any critical issues and include them in the acquisition agreement. In this article, we'll look at how to manage retirement plans when buying a company.

Key considerations of managing retirement plan liabilities in M&A

In the mergers and acquisitions process, a buyer may face unexpected liability due to the seller's retirement plan. To avoid this, the buyer should carefully investigate the plan as part of their due diligence and address any issues with the seller early on. The buyer should request key information, including the following:

Copies of the plan

Summary descriptions

IRS letters

Trust agreements

Compliance testing results

Recent IRS filings

If the buyer plans to acquire the seller's business through a stock sale or merger, there are additional issues to consider. In these cases, the buyer generally assumes the seller's liabilities and must decide what to do with the seller's plan. Options include:

Operating it as a stand-alone plan

Merging it with the buyer's plan

Terminating it

Leaving it with the seller

Each option requires careful analysis to determine the best course of action. If you need help, join the MNAcommunity.

When a buyer purchases assets, they usually only take on the seller's retirement plan responsibilities if the acquisition agreement says otherwise.

Mitigate risks through due diligence

Buyers must carefully analyze the seller's employee benefits and deferred compensation contracts to ensure a smooth employee transition and avoid costly mistakes. That's why mergers and acquisitions require due diligence. Here's what you should review as a part of the process:

1. Plan documents. It is important to check all documents for compliance with current laws and necessary compliance amendments and determine their compatibility with the buyer's current plan.

2. Defined contribution plans. Buyers should also review the unique attributes of defined contribution plans, such as 401(k), profit sharing, and ESOPs, for their impact on employees and the transaction. Non-discrimination testing results should be analyzed for potential liability.

3. Defined benefit plans. These documents must be reviewed for promised benefits and funding levels. A buyer assuming responsibility for the seller's pension plan must be aware of required contributions and long-term obligations, such as post-retirement medical benefits.

4. Fiduciary obligations. Also, it is essential to review the seller's fiduciary practices for errors or poor practices, such as investment committee minutes and policies, bonding levels, and timing of employee contribution deposits.

5. Plan operations. Plan operations, such as loan and distribution practices and compliance with governmental reporting requirements, should also be reviewed. How a plan is operated will influence whether to maintain or terminate the seller's plan.


In international mergers and acquisitions, careful risk management of retirement plans is critical. As this article has explained, the intricacies of dealing with a seller's retirement plan demand early scrutiny and a proactive approach to avoid post-deal complications. By methodically addressing potential issues and incorporating them into the acquisition agreement, buyers can safeguard against unforeseen challenges.


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About the author

Charline Aragon

I am a digital marketer with more than 10 years of experience. I am a contributor to Content Marketing Institute and regularly quoted as an expert in large media outlets. My job is to make your business known all over the Internet.

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