As businesses navigate mergers, acquisitions, carve-outs, divestitures, joint ventures and spinoffs, managing retirement plans during these transitions can become a significant challenge. These corporate changes often result in overlapping 401(k) plans, each with its own design, governance, and administrative processes. Establishing, integrating or spinning off retirement plans can be costly and time-consuming, adding complexity to an already intricate M&A process.
In this first part of our series, we’ll explore how Pooled Employer Plans (PEPs) can provide a strategic solution for companies undergoing mergers, acquisitions, carve-outs, divestitures, joint ventures, or spinoffs. PEPs offer a simplified, efficient approach to managing retirement benefits during corporate restructuring, helping employers focus on their broader M&A goals. In addition, these transactions often result in streamlined HR operating models, which PEPs directly support due to their rapid deployment, minimal employer administrative requirements, and cost effectiveness.
In the second part of our series, we will discuss how Pooled Employer Plans (PEPs) can offer a solution to companies with disparate plans.
01
When a company spins off a division, the newly independent business often needs to establish its own 401(k) plan. This can be both costly and administratively challenging. A PEP offers an alternative by allowing the spun-off entity to quickly join a pooled plan, benefiting from shared resources and reduced costs without the need to establish a standalone plan from scratch. They offer smaller employee populations the opportunity to benefit from the cost efficiencies and enhanced participant experience typically reserved for larger employers, thanks to the pooled structure of the plan. In addition, some PEPs can be established quickly, often in 2-3 months with zero setup fees.
02
After a merger or acquisition, companies often face the task of harmonizing multiple 401(k) plans. A PEP allows employers to avoid the immediate cost and complexity of integrating these plans by providing a pooled solution that consolidates them under one umbrella – even if there are disparate formulas applicable to subsets of the employee population. This streamlines administration, compliance, and reporting and disclosure, enabling the business to focus on larger integration efforts while ensuring continuity in retirement benefits.
03
During mergers or spinoffs, employee concerns about their benefits can create uncertainty. By using a PEP, employers can quickly introduce the future retirement plan experience for employees. This not only simplifies the transition but also helps maintain employee confidence and satisfaction during periods of corporate change. PEPs can streamline plan-to-plan transfers by seamlessly accommodating divested employees' accounts, including loans, ensuring participants maintain a consolidated retirement savings experience in one plan.
04
M&A activity introduces heightened fiduciary risks as the newly established retirement plan comes under scrutiny and new governance routines are established. By shifting these responsibilities to a PEP, companies can significantly reduce their fiduciary exposure. They can also help ensure that their retirement plans remain compliant with regulatory requirements throughout the M&A process.
05
Mergers and acquisitions can strain resources, with legal, administrative, and compliance costs often ballooning. A PEP can provide immediate cost relief by pooling resources across multiple employers, lowering the overall cost of plan management. Some of these savings are passed on to participants, while others can be reinvested into other areas of the business or the integration process, providing financial flexibility when it’s most needed.
Although PEPs provide an efficient solution during mergers and acquisitions, there are of course considerations to work through to determine if PEP is the right fit for a given transaction. It is important to align on implementation timing as early as possible even though company resource needs are streamlined, implementing a PEP often takes 2-3 months. A company should always evaluate the flexibility of a PEP to ensure the company can honor any commitments from the sales and purchase agreement, migrate investments to the new structure, and more. And finally, with all the change already present during M&A, clear communications are key to having employees understand what to expect in the move to a PEP. Choosing a PEP provider that offers tailored solutions and a collaborative approach can help navigate these integration considerations effectively.
PEPs can be a powerful tool for companies undergoing mergers, acquisitions, or spinoffs. By streamlining administration, reducing costs, and minimizing fiduciary risk, PEPs aim to offer a strategic advantage in navigating the complexities of M&A activity while delivering a positive experience for impacted employees.
In the next article of this series, we’ll explore how we believe PEPs can be an invaluable tool for companies with multiple non-integrated plans.
This document provides information on LifeSight Pooled Employer Plan (PEP) services that are being offered to you by WTW. Willis Towers Watson US LLC and Towers Watson Investment Services, Inc. or their affiliates are not acting in the capacity of providing “Investment Advice” within the meaning of 29 C.F.R. § 2510.3-21. It is your decision whether to engage WTW to provide any services or to invest in any investment available through WTW’s LifeSight PEP offering.
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