MERGERS & ACQUISITIONS

Employee Benefit Issues To Be Considered When Organizations Come Together

By Gary R. Thornton, SPHR, CEBS

Being charged with the responsibility of merging organizations is often a formidable task.  Aside from the cultural differences which will exist, practice as it relates to compensation and employee benefits delivery undoubtedly will create opportunities to correct inequities (perceived or real) between the different organizations.  The Human Resource merger implementation team should develop an approach that is not simply a comparison of policies and programs, but rather a more focused approach that will result in the development and/or modification of pay and benefit policies that will ultimately respond to the needs of both organizations.  Additionally, the approach should be in support of the strategic objectives of the "new" merged organization.

The Due Diligence Process should zero in on problems AND opportunities . . .

The due diligence process is often viewed as tedious and cumbersome, but if properly planned and carried out, will not only identify potential problems, but will also serve as the basis for building a foundation for the delivery of compensation and benefits in the new organization.  It is likely that even when two different organizations have comprehensive policies for delivery of pay and benefits, disparities do exist because of varying philosophical viewpoints.  Inherent in the consolidation of the workforce is the opportunity to gain economies through a common set of policies and procedures and quite often a larger critical mass in setting new standards for risk management and cost sharing.

The process might include . . .

With this in mind, a well thought out and proactive approach to the process will help toward a positive outcome. Items of note that you should incorporate in your review might include:

Pre-acquisition/Merger Checklist:

• Past and anticipated future practices with regard to Employment Benefits Plans

-  What has been the practice in similar merger/acquisitions?

-  What are the anticipated or desired actions outlined in the strategic objectives?

Information about Employee Benefit Plans

• General information - effective dates, value of plan assets, benefit formulas, eligible groups, contribution methodology, types of Plans offered.
• Funded status or Financial Condition of each Plan - accrued liability, actuarial assumptions, funding deficiencies/credits, other financial considerations.
• Early Retirement/severance arrangements - qualified or otherwise.

• Outstanding Legal and Tax Issues.

• IRS, DOL or other audits of the Plans?
• Pending Litigation?
• Legal Compliance problems - past or anticipated?
• Union and collectively bargained considerations?

• Considerations for Insured/Self-Financed Benefits?

• What is the unfunded liability associated with retirees?
• Are insurance companies holding excess reserves?
• Are liabilities for disabled employees full funded?
• Current cost for post-retirement benefits for current active employees?

Documents/Data for each Plan

• Plan Documents and amendments.
• Insurance contracts, administrative agreements.
• Trust agreements, amendments.
• Employee booklets, certificates, summary plan descriptions.
• Government filings - determination letters, Forms 5500, PBGC and others.
• Valuation and investment reports.
• Actuarial studies.
• Fiduciary bonds and liability policies.
• All cost information.

Compensation/Salary Administration/Miscellaneous Matters

• Outstanding employment agreements.
• Deferred compensation plans and arrangements.
• ERISA/TEFRA "excess plans" in place.
• Executive perquisites.

Does the Human Resource Merger Team need outside help . . ?

The need to engage outside professionals in the review and evaluation of the compiled data will vary with the complexity of the transaction.  In addition to identifying the legal and financial considerations with respect to the merging and/or termination of benefit plans, there may be value-added services such as the coordination of a competitive bid process for all third party and /or vendor negotiations and contracting.

The last and certainly not the least important piece of your plan needs to be communications, both up and down the organization.  The apprehension and anxiety, which is associated with workforce consolidation, is perpetuated by the non-sharing of information.  Employees who have information are able to make informed choices and will quite likely continue to be contributors to the mission of not only the current organization, but also the new "merged" one as well.

Gary R. Thornton, MBA, SPHR, CEBS, RPA, GBA is the Principal of Thornton & Associates, a human resources management consulting firm located in Scarborough, ME. He has more than 25 years’ experience in human resource management for both private and nonprofit organizations. He holds credentials as a Senior Professional in Human Resources (SPHR), Certified Employee Benefits Specialist (CEBS), Retirement Plan Associate (RPA) and Group Benefit Associate (GBA). He currently serves as a Special Expertise Panel Member - Total Rewards, Compensation & Benefits for the Society for Human Resource Management (SHRM). He has also held leadership roles in the Maine Employee Benefits Council and the Human Resources Association of Southern Maine. For more information about the information contained in this article, you may contact him at 207-885-9333 or email gthorn@ThorntonAndAssociates.net