What Happens to Retirement Plans During a Merger or Acquisition?
Mergers and acquisitions (M&A) can be exciting growth opportunities for businesses—but they can also bring significant complexity when it comes to employee benefits and retirement plans. For plan sponsors, human resources (HR) leaders, and advisors, navigating the retirement plan implications of an M&A transaction is critical to ensuring a smooth transition, minimizing risk, and protecting plan participants and beneficiaries.
So, what actually happens to retirement plans when two companies join forces? The answer depends on the structure of the deal—and on how proactive the stakeholders are in managing the transition.
Understanding the Deal Structure: Why It Matters
Retirement plan treatment is largely dictated by whether the M&A transaction is a:
- Stock purchase (where the acquiring company buys the target’s stock and assumes the target company’s assets, rights and liabilities),
- Asset purchase (where selected assets and liabilities are acquired), or
- Statutory merger (where two entities combine into a new or surviving entity).
In a stock purchase, the target company’s retirement plan typically stays intact unless the buyer takes action. In an asset deal, the buyer can choose whether to assume the acquired company’s plan. That flexibility can reduce risk—but it also requires thorough due diligence by the buyer.
The Big Decision: Merge, Terminate, or Maintain Separate Plans
One of the first decisions the buyer must make is what to do with the acquired company’s plan(s). There are typically three options:
- Terminate the target plan(s) before the close
- Merge the acquired plan(s) into the buyer’s existing plan
- Operate both plans separately
Each path has distinct legal, operational, and participant implications. For example, a plan termination requires compliance with IRS and DOL rules and must be carefully timed to avoid prohibited transactions, funding failures, or disqualification risks. Plan mergers must be documented properly and may only occur between plans of the same type of account (e.g., two 401(k) plans).
Key Considerations for Buyers
Buyers need to dig deep during retirement plan due diligence. Key areas to evaluate include:
- Compliance history (Were all filings timely? Have there been prior corrections?)
- Outstanding liabilities (e.g., late deposits, funding obligations for DB plans, withdrawal liabilities for multiemployer pension plan)
- Service provider contracts and fees
- Participant communications and fiduciary governance
It’s also essential to identify any non-qualified deferred compensation plans or legacy defined benefit plans, which can carry long-term costs and administrative complexity.
Key Considerations for Sellers
Sellers should prepare their plans for scrutiny. This means:
- Ensuring the plan is fully compliant and properly documented
- Correcting any outstanding errors or late filings
- Gathering all relevant plan documents, testing results, and fiduciary records
- Planning participant communications and distribution strategy once a course of action has been established
A clean plan profile can make the transaction smoother and more attractive to buyers.
Don’t Forget the Participants
Employees are often the last to hear about retirement plan changes, yet they are the most directly affected. Will the acquired employees be able to rollover their account balances into the buyer’s plan? Will vesting change? Are there blackout periods?
Plan sponsors must:
- Provide clear, timely communication about what’s changing
- Coordinate blackout notices and distribution timelines
- Reassure employees that their savings are protected
Advisors: Your Role Is Crucial
Advisors have an opportunity to be a true strategic partner during an M&A transaction. Beyond providing relevant investment advice, advisors can:
- Guide sponsors through plan design strategy post-merger
- Help consolidate or streamline vendors
- Manage fiduciary oversight and compliance
- Serve as a communication bridge between legal, HR, and finance teams
Avoiding Common Pitfalls
Some of the most common mistakes we see in M&A retirement plan transitions include:
- Skipping or failing to conduct sufficient due diligence on the acquired company’s plan
- Assuming plans can be merged automatically
- Overlooking legacy liabilities like pension obligations or unresolved audits
- Failing to communicate clearly with employees
These missteps can result in penalties, employee confusion, or fiduciary breaches.
The Value of a Fiduciary Partner
In times of transition, having a dedicated 3(16) fiduciary partner can be a valuable resource. A 3(16) fiduciary partner can:
- Assume some of the administrative and operational burdens
- Help minimize fiduciary exposure
- Ensure that plan compliance stays intact throughout the process
- Help with participant communications
Final Thoughts
Mergers and acquisitions are complex events—and retirement plans are often one of the most overlooked areas of risk and opportunity. With the right planning, guidance, and fiduciary oversight, plan sponsors and advisors can turn a potential compliance burden into a strategic advantage.
Whether you’re preparing for a deal, currently in the middle of one, or helping a client navigate a transition, early engagement with retirement plan professionals is essential. Don’t let retirement plans be an afterthought in your transaction, they’re too important to get wrong.
Pentegra can help. Contact us today to learn more at solutions@pentegra.com.
The information, analyses and opinions set out herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. Nothing herein constitutes or should be construed as a legal opinion or advice. You should consult your own attorney, accountant, financial or tax advisor or other planner or consultant with regard to your own situation or that of any entity which you represent or advise.