Too Hot to Handle? What to Do with a Target’s 401(k) Plan in a Corporate Transaction

Stock purchase agreements and asset purchase agreements will differ in how the parties approach the target's 401(k) plan(s). Generally, there are three options: (1) continue operations, (2) terminate the target 401(k) plan, or (3) merge the target 401(k) plan with the buyer’s plan. Each of these approaches has advantages and disadvantages and must be considered in the context of the disclosures from the target during the due diligence phase and with input from ERISA counsel. 

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Related Content

• Retirement Plan Mergers and Spinoffs
  Learn how an actual merger of the target’s plan into the buyer’s plan might be handled. For defined contribution plans, participants' accounts generally move from one plan to another: pre-tax accounts to pre-tax accounts, and so on. The principal issues involve the harmonization of plan investments by "mapping" the transferor plan's menu of investment options onto those offered by the transferee, and possibly imposing a "blackout period," that is, a short moratorium on investment transactions and changes in contribution rates and types while assets are transferred between custodians.
• Not Done Yet—Employee Benefits Plan Transition and Integration Decisions Continue After M&A Transactions Close
  Understand that, even in transactions where the acquired company's employee benefits plans are terminated prior to, or in connection with, the closing, there is still work to be done to wind down the plans.
• 401(k) Plans in Stock Purchase M&A Transactions: A Buyer's Guide to Choosing Termination or Merger
  Learn more about 401(k) plans in stock purchase acquisitions. Should the buyer require the target to terminate the 401(k) plan prior to closing? Or should the buyer keep the target’s 401(k) plan in place for a short time following closing and then merge it into its own existing 401(k) plan?

Practical Guidance Updates 
Featuring the latest updates from your Practical Guidance account.      

• Employee Benefits & Executive Compensation Key Legal Developments Tracker (Current)
  Stay informed on new developments.
• Retirement Plans. Two Texas district courts have granted a stay on the effective date of the Department of Labor's 2024 Fiduciary Rule. Fed'n of Ams. for Consumer Choice, Inc. v. United States DOL, 2024 U.S. Dist. LEXIS 131589 (E.D. Tex. July 25, 2024); Council of Life Insurers v. United States DOL, 2024 U.S. Dist. LEXIS 133158 (N.D. Tex. July 26, 2024).
  • Retirement Plans. IRS and Treasury issue final and proposed regulations under R.C. § 401(a)(9). The final regulations, among other things, implement changes under the Setting Every Community Up for Retirement Enhancement (SECURE) Act (Division O of the Further Consolidated Appropriations Act, 2020, Pub. L. No. 116-94) and the SECURE 2.0 Act (Division T of the Consolidated Appropriations Act, 2023, Pub. L. No. 117-328). 89 Fed. Reg. 58,886 (July 19, 2024); 89 Fed. Reg. 58,644 (July 19, 2024).
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