A NON-TECHNICAL REVIEW OF QUALIFIED RETIREMENT PLAN LEGISLATIVE AND ADMINISTRATIVE ISSUES
operating the plan as long as the sponsoring entity continues to exist . Employees who transition to the buyer will be considered new hires and terminated under the seller ’ s firm . In most cases , the terminated employees will have the option to roll over their account balances to the retirement plan of the buyer . It is common for the buyer ’ s plan to be amended , allowing for immediate eligibility for these new employees . If it is not amended , the new employees will need to satisfy the eligibility requirements defined under the buyer ’ s plan .
STOCK SALE
In a stock sale , the buyer purchases the stock of the seller ’ s company . The company is absorbed by the buyer , becoming part of the buyer ’ s firm . The buyer becomes the employer and assumes all liabilities tied to the seller . This includes the retirement plan unless specifically addressed in the purchase agreement . Under this scenario , there are generally three options available with regard to the seller ’ s retirement plan . First , the buyer could require the seller ’ s plan be terminated prior to the effective date of the sale set forth in the purchase agreement . In this case , with the proper board resolution , the seller would be responsible for completing the termination of the plan . It is important that the termination process set forth by the IRS be followed in order to avoid violating successor plan rules .
Another option is to maintain both plans . As long as both plans satisfy coverage rules immediately before the transaction and there are no significant changes in the terms or coverage of the plan , the sponsor may rely on the transition rule where coverage requirements are considered satisfied . This means the plans can be separately maintained through the end of the transition period . This period runs through the end of the year following the year in which the transaction took place . After the transition period has expired , if the sponsor continues to maintain both plans , they must be tested together .
The third option available is to merge the plans . This is typically the option most plan sponsors choose . In this case , the seller ’ s plan is usually merged into the plan of the buyer . This is accomplished through a resolution and amendment to the surviving plan . It is important the seller ’ s plan be reviewed for any protected benefits . These benefits , such as vesting and certain distributable events , cannot be eliminated . It is also important to note that with the merging of the two plans , the surviving plan inherits any compliance issues or failures that exist . The buyer should complete their due diligence with regard to review of the seller ’ s plan before going this route . Any deficiencies will need to be addressed and corrected accordingly . This review and the subsequent documentation will prove beneficial should the seller ’ s plan be selected for audit , as the IRS can audit a plan up to three years from the date the final Form 5500 was filed .
While every transaction is unique , some advance planning with regard to retirement plans can save you from quite a few headaches down the road . Take the time to consult with your advisors , including your CPA , attorney , etc ., when considering buying or selling a business . As a buyer , if you don ’ t , you could suddenly find you are the proud sponsor of a retirement plan ! ■
DEPARTMENT OF LABOR ISSUES CYBERSECURITY GUIDANCE
ON APRIL 14 , 2021 , THE DOL ’ S EMPLOYEE BENEFITS SECURITY ADMINISTRATION ( EBSA ) ISSUED LONG-AWAITED GUIDANCE DESIGNED TO PROTECT PARTICIPANTS FROM BOTH INTERNAL AND EXTERNAL CYBERSECURITY THREATS . The guidance is far-reaching and is directed at plan sponsors , plan fiduciaries , recordkeepers , and plan participants . This is the first time the DOL has issued guidance on cybersecurity for employee benefit plans and is a welcome step forward as it provides best practices and tips to help mitigate cybersecurity risks .
The guidance is set forth in three parts :
Tips for Hiring a Service Provider : Provides practical steps plan sponsors and fiduciaries can take when selecting retirement plan service providers .
BENEFIT INSIGHTS SPRING 2021