(b)lines Ask the Experts – Due Diligence Before Mergers

“I work at a health care facility where we are considering merging with another facility.

“What sort of due diligence should I be conducting with respect to the retirement plans sponsored by each entity?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:

Excellent question! Though there is often an extensive due diligence process undertaken with respect to a merger well in advance of the transaction, the Experts often find that the level of due diligence does not often extend to the detail of employee benefit plans, including retirement plans.

Working with benefits counsel well-versed in mergers and acquisitions can be highly beneficial in this regard, since issues with a significant monetary or administrative impact can be uncovered with a thorough review. Such issues include, but are not limited to:

1)      Unfunded retirement plan liabilities (such liabilities often exist if any defined benefit plans are sponsored);

2)      Retirement plan contribution formula(s) that are not market competitive (can often be the case with acquisition targets in health care, since many are financially troubled—thus there would be a cost of bringing such contributions up to market levels);

3)      Regulatory issues (e.g. if the entities sponsor plans subject to different regulatory schemes, such as church and non-church plans);

4)      Qualification issues (e.g. if the targeted entity has significant operational defects in its retirement plans, such defects will take money and effort to correct);

5)      Controlled group complexity (e.g. is the target entity a single entity sponsoring a single plan? Or are there several entities in the controlled group, each sponsoring its own retirement plan(s)?); and

6)      Asset portability (can retirement plan assets be merged? Or are all/some assets illiquid?).


As is the case with other aspects of mergers, doing one’s homework with respect to the retirement plans now can eliminate potentially costly headaches down the road!


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.