Managing Retirement Plans in M&A Change Events
By Ashley Palmer, Regional Managing Partner – Aon Wealth Solutions Asia Pacific
When it comes to corporate M&A change events, managing employee retirement plans are rarely first priority. But if not dealt with properly at the time, they can blow out costs, timelines and derail the project down the line. This article examines the key five things that need to be considered when dealing with retirement plans as part of M&A deals.
Key takeaways:
- Thorough due diligence is essential: Early identification and assessment of all employee-related liabilities, including defined benefit retirement and long-service and severance plans, is crucial to avoid unexpected costs and complications.
- Make contingency plans: Factoring in ample time and contingencies for statutory communication periods, regulatory approvals, and vendor transitions is vital to ensure a smooth transition without delays or surprises.
- Effective communication is crucial: Consistent, transparent communication through multiple channels helps keep all stakeholders informed, reduces employee anxiety, and facilitates a smoother transition.
1. The importance of being earnestly ‘deal-ready’
Ensuring that all aspects of employee retirement plans are in order and are in line-of-sight before an M&A deal can significantly smooth the transition process. Whilst it sounds idyllic, it is easily achievable by having an up-to-date inventory of all plans and entitlements. Utilising technology to maintain a clear view of employee plans and entitlements, plan documents and rules governing changes in ownership and participating employers, the latest actuarial valuation reports, employee contracts, and any group bargaining or union agreements is crucial. Assembling a multi-disciplinary ‘deal-ready’ team is also important, including inputs from HR/reward, finance, corporate communications, trustees, vendors and project management teams, along with those providing leadership approvals. Trusted independent external advisers, such as employment lawyers and actuaries, should also be on standby. Being deal-ready minimises surprises and ensures that all relevant information is readily available to address any concerns early that may arise.
2. Identify defined benefits in the initial due-diligence phase
Defined benefit plans can significantly impact the financial and operational aspects of an M&A deal, making it essential to identify these benefits and entitlements early in the due-diligence phase. Defined benefit retirement plans, long-service or jubilee plans, severance plans, and other long-term employee benefits, such as those with guarantees or employer promises, should be carefully examined. It is also crucial to beware of unfunded liabilities and consider the implications of these in negotiations. If plan liabilities and any transferring assets are significant, they might require consideration as part of the overall deal negotiations. Developing a defined benefit risk management or de-risking strategy for the acquirer can mitigate potential risks and ensure a smoother transition.
3. Time waits for no plan: factor in contingencies
Retirement and benefit plan changes require adequate time to comply with statutory minimum communication periods, obtain regulatory approvals, and manage vendor transitions. It is essential to factor in sufficient time and contingencies to accommodate these requirements. New plan setups often require time for changes in participating employers and termination periods with existing vendors. Additionally, onboarding periods with new vendors, including third-party risk assessments, should be factored in. Allowing contingencies within project timelines, especially during the execution and implementation phases, helps ensure overall timelines get met. Taking account of operational blackout periods and even public holidays is also crucial to ensure a smooth transition without unexpected interruptions.
4. Develop an optimal change strategy
Change creates opportunities and risks, developing an optimal change strategy can help harmonise and streamline plans during an M&A event. Options for change strategy include full harmonisation, which can involve both benefit design harmonisation and also consolidation of vendors to leverage economies of scale, reduce costs and minimise third-party vendor management. Conducting a ‘winner/loser’ analysis can help understand the impact of changes on different workforce demographics. Determining whether plans can be replicated by the acquirer can depend on minimum employee or asset sizes and regulatory constraints. Opportunities to optimise and simplify plans, maximise cost savings, and enhance operational efficiencies should be explored to create more streamlined and effective go-forward structures aligned to corporate objectives.
5. Communicate, Communicate, Communicate
Effective communication is vital during an M&A event, to all levels of an organisation. Regular management reporting ensures that senior management decision-makers are kept up-to-date with progress and latest developments and can make informed decisions. Meanwhile, transparent and consistent communication helps build trust and reduces anxiety among employees, facilitating a smoother transition and maintaining morale and retaining key talent. Helping employees navigate the changes, understand their options, make informed decisions, and know where to seek support is key. Utilising multiple communication channels can ensure that all stakeholders are informed and engaged throughout the process.
By following these five tips, companies can manage employee retirement and benefit plans effectively during M&A events, mitigating operational risks, maximising cost savings and ensuring a smoother and on-time integration process.
For expert guidance on all aspects of Human Capital change including retirement and benefit plans talk to Aon’s experienced team.
By Ashley Palmer, Regional Managing Partner – Aon Wealth Solutions Asia Pacific
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