ML BeneBits

In connection with a merger, acquisition, or other corporate (M&A) transaction, buyers often face the dilemma of how to handle the seller’s existing retirement plans covering the continuing employees. Terminating a seller’s existing retirement plan can be complicated if the seller maintains a Savings Incentive Match Plan for Employees (SIMPLE) IRA plan because the “exclusive plan rule” under Section 408(p)(2)(D) of the Internal Revenue Code (Code) provides that a SIMPLE IRA plan may not be maintained for a calendar year if the employer maintains a qualified plan for that calendar year.

A common topic of negotiation in M&A transactions is how to treat performance-vesting equity awards for which the relevant performance period is not yet completed as of the closing of the deal. The target company may have outstanding performance shares, performance-based restricted stock units (PSUs), or other awards that vest based on the achievement of certain companywide or business unit–wide financial metrics over a certain performance period.

When private equity investment transactions close, management and private equity investors are off to the races—generally aligned on strategic and financial objectives. However, as market conditions and the economic climate shift, key parties may become misaligned and management incentive plans (MIPs) could become underwater or ineffective.

The Federal Trade Commission (FTC) announced a notice of proposed rulemaking on January 5, 2023, that would ban employers from entering into or maintaining noncompete clauses with their workers. The proposal was issued in response to President Joseph Biden’s July 9, 2021 executive order and related statements calling on the FTC to ban or limit employment contract restrictive covenants that restrict workers’ freedom to change jobs. See our LawFlashes discussing the proposal and frequently asked questions.

Also, for employers with 50 or more full-time employees, compliance with the Affordable Care Act (ACA) is an important issue.

This is the third in a series of blog posts aimed at getting the human resources, benefits, and executive compensation functions of your organization ready for a potential sale or similar corporate transaction. Part I provided general guidelines and suggestions on how to get organized. Part II addressed change of control documents that may be affected by a potential sale, as well as the treatment of outstanding equity compensation. This post addresses the impact of a sale on your organization’s retirement plans.

This blog post is Part 2 in the “Ready for a Sale?” series, which is aimed at getting the human resources, benefits, and executive compensation functions of your organization ready for a potential sale or similar corporate transaction. Part 1 provided general guidelines and suggestions on how to get organized and start the process. This second part will address key considerations in the process that often arise early: (1) identifying, assembling, and analyzing documents that will be automatically triggered or impacted by the potential sale, and (2) determining the expected impact of the transaction on any outstanding equity compensation.

In light of the active M&A market, we think this spring could be an ideal time for companies to evaluate the order of their executive compensation arrangements and employee benefit plans, particularly companies that are considering (or hoping for) a sale within the short-term future.