Do you remember the early 1970s’ sitcom that brought us the story of a “lovely lady who was bringing up three very lovely girls?” She married a man who was “busy with three boys of his own?” If yes, you will recall there were many issues negotiated before family harmony was achieved. Dogs or cats? Who gets the attic bedroom? And, of course, how will six children coexist with just one bathroom? It took clever planning to make it all work.

The same ingenuity is needed when corporations merge. There are so many details to negotiate, not the least of which is the treatment of the corporations’ retirement plans. Plan sponsors must consider the potential impact that a merger will have on their role as a fiduciary, as well as on their employees’ investment outcomes. Like good parents, plan sponsors play an important role in the ultimate success of a corporate union.

Vanguard provides guidance

When it comes to issues affecting tax-qualified retirement plans and alternatives available to the buyer of another company, Vanguard adds value while smoothing the way to a harmonious coexistence. Our research paper Employee benefits consideration in corporate mergers and acquisitions takes a detailed look at the host of issues plan sponsors face both before and after a corporate merger or acquisition. We’re here to help by offering guidance on compliance, enrollment, legal, and regulatory hurdles that need to be overcome to marry the two plans.

Usually the buyer merges the seller’s plan into its own. But if the seller’s plan is out of compliance, the buyer may opt to operate the two plans separately, at least for a while.

It is important to review existing contracts with service providers, including the plans’ recordkeepers, the trustees, and the issuer of a stable value fund or guaranteed investment contract if offered as an investment within the acquired plan. The plan sponsor can then determine whether to terminate duplicate relationships as appropriate. We also advise that the Investment Committee reviews the process for the selection and monitoring of investments relative to the plan’s investment policy statement when determining the investment lineup of the merged plan.

Bring everyone to the table

Of course, corporate mergers also involve people. The sooner benefit issues are resolved, the quicker you can engage new employees and reduce anxiety. In most cases, it is advisable to shorten the transition period to as little as six to nine months, helping employees get past distractions and make them feel like part of a new, productive corporate culture. We find that sending straightforward, upbeat communications about the transition to all employees can ease tensions and have a positive effect on the arrangement.

While we’re checking “under the hood” of the plans, we also take the opportunity to look for ways to streamline the administrative processes, introduce cost-saving automation, and improve the participant experience. Since the introduction of qualified default investment alternatives (QDIAs) about a decade ago, plan sponsors can choose to forgo mapping of investments in favor of a QDIA. Sometimes circumstances warrant the reenrollment of the entire participant population. If the acquired plan has a low participation rate or includes many undersavers, we may introduce both automatic enrollment and autoescalation and “sweep” undersavers and nonsavers into the plan. This action has been demonstrated to help participants save effectively, adopt more appropriate asset allocations, and achieve better outcomes for retirement security.

Whether you’re blending families or corporations, it takes a lot to get everyone past the swirl of uncertainty. Yet, when handled with wisdom and consideration, the honeymoon can continue indefinitely.

Notes:

  • All investing is subject to risk, including the possible loss of the money you invest.
  • A stable value investment is neither insured nor guaranteed by the U.S. government. There is no assurance that the investment will be able to maintain a stable net asset value, and it is possible to lose money in such an investment.