Plan Transfers

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

In today’s market the mergers and acquisitions of businesses are on the rise.  If the company maintaining your 401(k) plan is purchased, or merges with another company, what issues should you be considering?  There are risks associated with the accounting of plan transfers that the plan administrator should be aware of.  Plan transfer risks include:

1. Mergers and spin-offs are not recorded in the proper period.
2. Appropriate assets and liabilities are not properly transferred.
3. The value of assets and liabilities transferred do not reconcile between plans.
4. Mergers and spin-offs are not fairly presented in the financial statements and not appropriately disclosed.
5. Plans have been merged or assets spun off without appropriate authorization.

It is important to take note of the above issues so that you not only avoid making the mistakes associated with them, but also so that you can ensure that your auditors are working to help verify that everything is accounted for properly.  Here are some tips to help:

1. Determining the proper merger date will ensure that everything is recorded in the proper period.  The effective date of the merger is when all plan assets were legally transferred to the control of another plan.
2. In order to make sure that the appropriate assets and liabilities are properly transferred, it is important for both trustees and third party administrator to meet and discuss the details of the transfer.
3. As stated above, the meeting of the trustees and third party administrator of both plans is essential to properly account for the transfer.  Having communication between all parties involved with the plan will ensure that the proper value of the assets and liabilities is transferred to the new plan.
4. By working with your auditors on the disclosures, you can be certain that the merger will be fairly presented in the financial statements.
5. Lastly, it is important to have controls in place to make sure that the plan transfer is properly authorized and fully documented.  In addition, all employees should be made aware of the transfer.

Hopefully bringing certain risks to your attention beforehand will help in the merger/acquisition process!  If you have any questions or comments, please feel free to post them to the site!

Brittney Blais