With interest rates low, mergers and acquisition activity is brisk even for smaller and middle market companies. Sometimes overlooked in the mergers and acquisitions process are the 401k and other retirement plans of the acquired company as well as how it affects the acquiring company. A participant at a TPSU program at Thunderbird School of Global Management (ASU) whose company is growing through acquisitions discusses the challenges and opportunities.
Time is of the essence in many transactions so the senior manager of HR and benefits at a 600 person online education company that has been an active buyer tries to get involved in the process as early as policy. Challenges can arise when asking the record keepers and advisors for complete information as they jockey for position to be the winner after the transition.
M&A activities are also an excellent time for the consolidated company to look at all their retirement plans to first, make sure that the plans and the vendors make sense for the new entity. In addition, it’s important to review the new buying power of the larger 401k plan that may result in significantly reduced fees because the plan is eligible for lower share classes or can move to less costly collective trusts or managed accounts. In fact, not conducting a major review of all retirement plans after an acquisition may give rise to liability if a plan sponsor has not taken prudent steps to determine if lower priced share classes are available.
Lessons learned: if an organization and their 401k or 403b plan is growing regardless of M&A activity, it’s prudent to not only determine if fees can be reduced but also whether the record keeper and advisor is still appropriate for the plan. The biggest reason plans are looking for a new advisor according to the 2017 TPSU/NAPA Plan Sponsor Survey is that they simply outgrew the capabilities of their advisor. Also, review the 401kTV Resource Center’s list of National Record Keepers to determine if your provider is appropriate for your plan size.
