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Plan sponsor checklist: Key considerations for mergers & acquisitions

Navigate 401(k) challenges during mergers and acquisitions with this guide for plan sponsors on compliance, plan decisions, and employee communication.

By Betterment Editors

Published Feb. 27, 2025

Plan sponsors considering their 401(k) during a merger.

Plan sponsor checklist: Key considerations for mergers & acquisitions Feb 27, 2025 9:51:46 AM Navigate 401(k) challenges during mergers and acquisitions with this guide for plan sponsors on compliance, plan decisions, and employee communication. M&A and your 401(k) Mergers and acquisitions (M&A) can shake things up at a company—including your 401(k) plan. But, with a bit of foresight, plan sponsors can help manage the transition smoothly. Here’s what you need to know to stay compliant and on track. Planning ahead Before an M&A deal, it’s important to evaluate the retirement plans currently in place for both companies. Oftentimes, in the sale agreement, there will be language that dictates what happens to the seller’s 401(k) plan.For instance, it may be noted that the seller’s plan will be terminated before the sale date. This helps ensure that all plan assets are distributed or rolled over appropriately, minimizing potential complications for the acquiring company and employees. Alternatively, the buyer may decide to merge the seller’s plan into their own, which requires a thorough review of both plans to identify differences in features, investment options, and compliance requirements. Understanding these details early allows plan sponsors to make informed decisions, reduce risks, and streamline the process for employees impacted by the transition. Understanding asset purchase vs stock purchase The structure of an M&A deal—whether an asset purchase or a stock purchase—can impact how 401(k) plans are handled during the transition. Asset purchases: The buyer chooses which assets and liabilities to take on, which will be defined in the asset purchase agreement. The seller usually keeps their retirement plan. Stock purchases: The buyer takes control of the entire company, including its retirement plan, which may require more attention post-merger. Think of it like buying a house: In an asset sale, the buyer can choose which furniture or fixtures to keep in the house. In a stock sale, the buyer takes everything. Now, let’s look at the asset sale from the seller’s perspective. The seller retains ownership and responsibility of the 401(k) plan. Even if the seller’s company is going out of business, their 401(k) plan needs to be addressed. Until the two plans are fully combined, the seller still has the risk and liability over the existing plan. Next, let’s look at a stock sale from the buyer’s perspective. During a stock sale, the buyer will inherit everything from the seller, including the 401(k) plan. In this scenario, it is common for the seller’s plan to be terminated before the sale. This would ensure that the buyer does not inherit an active 401(k) plan. If they do inherit the plan, they may be taking on more risk. In this scenario a buyer would now have two active 401(k) plans that they would have to manage. Terminating the seller’s plan is not possible once the buyer “owns” the 401(k) plan, since this would now be considered a “successor 401(k) plan”. The buyer has three options in this scenario: Freeze the acquired plan. This requires full maintenance of the plan, including the accounts, documents, annual Form 5500 filing, as well as any audits, but stops further contributions Merge the acquired plan into the buyer’s plan. This requires a close review of the merged assets, as well as the plan provisions to determine if any changes are needed to accommodate protected benefits. Keep the acquired plan as is. This means the buyer now operates two separate 401(k) plans, and has two sets of documents, two 5500 filings, and potentially two audits. The plan sponsor would also need to combine the plans for compliance testing purposes. How to manage risks and costs As with any major transition, managing costs and mitigating risks requires careful planning and collaboration. The acquiring party will want to budget for extra admin expenses during an M&A transition, such as recordkeeping fees and legal costs, to avoid unexpected financial strain. It’s also crucial to document key decisions to ensure compliance and reduce fiduciary (and litigation) risks. It could be beneficial to partner with experts, like ERISA attorneys, financial advisors, and recordkeepers, who can help you navigate the complexities of transitioning your 401(k) plan. Planning and understanding are everything. You’ll want to share updates with your employees in a timely manner. Let them know the timelines and what they can expect as you start the M&A transition. If you can, it would be helpful to designate an HR person for extra support during the merger, to help them make decisions about their retirement savings. While it is important to ensure participants have a seamless experience during any M&A situation, you want to plan ahead to avoid expensive corrections. The retirement plans involved in M&A deals can be tricky, but by analyzing the details, staying compliant, and seeking expert help, you can set up the merger or acquisition for long-term success.

Navigate 401(k) challenges during mergers and acquisitions with this guide for plan sponsors on compliance, plan decisions, and employee communication.

M&A and your 401(k)

Mergers and acquisitions (M&A) can shake things up at a company—including your 401(k) plan. But, with a bit of foresight, plan sponsors can help manage the transition smoothly. Here’s what you need to know to stay compliant and on track.

Planning ahead

Before an M&A deal, it’s important to evaluate the retirement plans currently in place for both companies. Oftentimes, in the sale agreement, there will be language that dictates what happens to the seller’s 401(k) plan.For instance, it may be noted that the seller’s plan will be terminated before the sale date. This helps ensure that all plan assets are distributed or rolled over appropriately, minimizing potential complications for the acquiring company and employees.

Alternatively, the buyer may decide to merge the seller’s plan into their own, which requires a thorough review of both plans to identify differences in features, investment options, and compliance requirements. Understanding these details early allows plan sponsors to make informed decisions, reduce risks, and streamline the process for employees impacted by the transition.

Understanding asset purchase vs stock purchase

The structure of an M&A deal—whether an asset purchase or a stock purchase—can impact how 401(k) plans are handled during the transition.

Asset purchases: The buyer chooses which assets and liabilities to take on, which will be defined in the asset purchase agreement. The seller usually keeps their retirement plan.
Stock purchases: The buyer takes control of the entire company, including its retirement plan, which may require more attention post-merger.

Think of it like buying a house: In an asset sale, the buyer can choose which furniture or fixtures to keep in the house. In a stock sale, the buyer takes everything.

Now, let’s look at the asset sale from the seller’s perspective. The seller retains ownership and responsibility of the 401(k) plan. Even if the seller’s company is going out of business, their 401(k) plan needs to be addressed. Until the two plans are fully combined, the seller still has the risk and liability over the existing plan.

Next, let’s look at a stock sale from the buyer’s perspective. During a stock sale, the buyer will inherit everything from the seller, including the 401(k) plan. In this scenario, it is common for the seller’s plan to be terminated before the sale. This would ensure that the buyer does not inherit an active 401(k) plan. If they do inherit the plan, they may be taking on more risk. In this scenario a buyer would now have two active 401(k) plans that they would have to manage. Terminating the seller’s plan is not possible once the buyer “owns” the 401(k) plan, since this would now be considered a “successor 401(k) plan”.

The buyer has three options in this scenario:

Freeze the acquired plan. This requires full maintenance of the plan, including the accounts, documents, annual Form 5500 filing, as well as any audits, but stops further contributions
Merge the acquired plan into the buyer’s plan. This requires a close review of the merged assets, as well as the plan provisions to determine if any changes are needed to accommodate protected benefits.
Keep the acquired plan as is. This means the buyer now operates two separate 401(k) plans, and has two sets of documents, two 5500 filings, and potentially two audits. The plan sponsor would also need to combine the plans for compliance testing purposes.

How to manage risks and costs

As with any major transition, managing costs and mitigating risks requires careful planning and collaboration. The acquiring party will want to budget for extra admin expenses during an M&A transition, such as recordkeeping fees and legal costs, to avoid unexpected financial strain. It’s also crucial to document key decisions to ensure compliance and reduce fiduciary (and litigation) risks. It could be beneficial to partner with experts, like ERISA attorneys, financial advisors, and recordkeepers, who can help you navigate the complexities of transitioning your 401(k) plan.

Planning and understanding are everything. You’ll want to share updates with your employees in a timely manner. Let them know the timelines and what they can expect as you start the M&A transition. If you can, it would be helpful to designate an HR person for extra support during the merger, to help them make decisions about their retirement savings.

While it is important to ensure participants have a seamless experience during any M&A situation, you want to plan ahead to avoid expensive corrections. The retirement plans involved in M&A deals can be tricky, but by analyzing the details, staying compliant, and seeking expert help, you can set up the merger or acquisition for long-term success.