Generally, the purchase of one company by another (merger) can impact the retirement plans maintained by one or both of the companies as follows: Post-merger company becomes new plan sponsor – If only one company in the merger transaction had a retirement plan, the new post-merger company may become the sponsor of that retirement plan. One company may merge its retirement plan with that of the other company – This results in the post-merger company having only one retirement plan covering all employees. Either one or both of the companies may terminate their retirement plan – This can result in: no retirement plan for the post-merger company; one company in the merger terminates its retirement plan and then allows the participants of the terminated plan to join the retirement plan of the post-merger company; or both companies in the merger terminate their plans and the post-merger company starts a new plan. Post-merger company becomes new plan sponsor If only one company in the transaction had a retirement plan, the post-merger company can decide to become the new sponsor of that plan. Generally, a new plan sponsor does not significantly change the terms of the existing plan and, therefore, has little impact on existing plan participants. The law does require that the new sponsor notify the plan’s participants of the new plan sponsor’s name and address. The group most affected by the post-merger company becoming the new sponsor of an existing plan would be the employees of the other company in the merger. These employees would likely have the opportunity to join that retirement plan as long as they meet that plan’s eligibility requirements. Plan mergers A retirement plan can merge with another plan. Generally, the merger of the plans cannot violate the anti-cutback rule. This means that the merger cannot reduce or eliminate protected benefits: accrued benefits; early retirement benefits; retirement-type subsidies; or optional forms of benefit. Although a plan merger may result in some changes in a plan’s administrative terms (for example, the plan administrator or investment choices), it usually does not have a significant impact on a participant’s benefits. Terminating a retirement plan If a company decides to terminate its retirement plan, it generally: notifies all plan participants; and if allowed, distributes its assets to the plan participants as soon as administratively feasible (generally, within one year). Upon termination, each employee is 100% vested in their defined benefit plan’s accrued benefits and their defined contribution plan’s account balance regardless of the plan’s vesting schedule. An individual who receives benefits when a plan terminates must include any part that was not previously taxed in his or her gross income for the year of distribution. If the individual is under 59 ½ years of age, then the amount received may be subject to a 10% early withdrawal tax. However, the participant may be able to roll over the distributed assets into another qualified plan (maybe even to the retirement plan of the new company) or an IRA. Visit the PBGC website for an explanation of special rules that apply to mergers of multiemployer defined benefit plans. Additional resources What you should know about your retirement plan PDF
