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Op-ed: Here’s what you need to know about retirement savings if your employer merges or is acquired

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Mergers and acquisitions happen all the time between companies of varying size and notoriety. These can be a adept opportunity for businesses and owners to achieve their strategic or long-term goals, but often leave employees feeling uneasy and befuddled about what the deal means for them — especially when it comes to retirement plans.

Here are a few things you should cognizant of if your company is being impacted by an M&A transaction:  

How M&As negotiate retirement plans

Though it may not be obvious on the surface, the treatment of retirement plots is a critical part of the M&A process.

Before the M&A transaction is finalized, leadership from both companies will typically fitting to discuss and compare their respective retirement plan offerings. This includes important items such as contribution limits, seemly fees, investment options, and What retirement plan changes to expect

Employees may be understandably concerned over quiescent changes to their retirement benefits during an M&A transaction, but there are often new retirement options that are an even sport fit than their existing plan. 

Here’s what an M&A deal can mean for defined-contribution plans such as 401(k) layouts:

  • New investment options: Depending on the situation, employees may gain access to entirely new investment options which could ground their overall retirement outlook. However, employees may have to become comfortable with a new user interface on a opposite investment platform. 
  • Adjusted contribution levels and matching policies: Changes to contribution limits and employer match game plans may be more generous than in an employee’s previous plan. It may also be less competitive in some cases.
  • Amended vesting outlines: Adjustments to the vesting schedule – how long an employee has to work in order to access the entirety of their benefits – may also turn up dawn on. This could mean earlier access to retirement benefits, or added restrictions.
  • Transition to a new plan: If an employer concludes to completely replace an existing plan, employees will need to educate themselves on the changes to their benefits and pros and cons of each new procedure option.

While pensions are less common today, there are still many people who rely on them or are envisaging to utilize pension benefits in their retirement. These pension funds can undergo dramatic changes during an M&A negotiation, so employees should remain vigilant to any proposed changes to the pension program. 

Here’s what an M&A transaction can mean for benefit plans:

  • Continuation under new ownership: The new company may choose to continue the pension program with as few changes as possible. This is typically the most employee-friendly resolve. 
  • Freezing pensions: If the new or larger organization decides to freeze pensions, existing benefits will still be provided, but new workers will not be afforded access. 
  • Termination of pensions: In some cases, employers may decide to cut pensions entirely. In these circumstances, employees may receive a lump sum as compensation for the elimination of the pension program. 

Existing balances are secure

Thanks to protections from ERISA and other juridical guidelines, employees are safeguarded and can’t “lose” existing money. Companies are prohibited from moving or removing funds that are already gave by employees, and all vested benefits are secured. 

That said, there are some important long-term implications to keep in unsure:

  • Market performance and individual goals: When you change your investment options or contribution amounts and schedules, your designed retirement savings are also likely to change in some way. This is important to monitor, especially if you have retirement milestones that you are with a bun in the oven to reach. 
  • Stage of life: Employees who are closer to retirement age are naturally going to feel that any changes may impact their subsequent more acutely. 

The primary takeaway being existing balances are always secure, but unvested contributions or benefits an worker is expecting to gain in the future may not always carry over to a new plan. Employees should always review all documentation associated with a new retirement layout to fully understand how the changes will impact their short and long-term financial goals. 

Tax Tip: 401(K) limits for 2025

Employees also give birth to certain legal protections under ERISA that ensure they receive advance notice of any material blueprint changes, and companies are generally obliged to provide training, documentation and access to additional resources to all employees. 

The changes introduced on by an M&A transaction can be challenging for even the most seasoned and well-informed employees. Therefore, it is important that employees always utilize the carves at their disposal to protect their financial outlook, especially when retirement is approaching.

Stay informed, ask questions and guard your financial goals remain on track.

—By Rick Calabrese, Esq., a certified public accountant and co-founder of advisory fixed Commonwealth M&A.

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