Editor’s Note: This is the latest in a series of posts by speakers at the 2013 NAPA/ASPPA 401(k) Summit, March 3-5, 2013 in Las Vegas. Laura Gaynor, Vice President, Transamerica Retirement Solutions, offers insights on how advisors can position themselves effectively for the possibility that an employer client merges or is acquired.
By Laura Gaynor
An improving but still uncertain economic climate has some business leaders forecasting a substantial increase in merger and acquisition activity during the coming year. According to PricewaterhouseCoopers: “Ongoing access to capital and financing, strengthened balance sheets and divestiture activity will continue to fuel deal activity in 2013.” (“PwC Says Fundamentals are Strong for U.S. Mergers & Acquisitions Activity in 2013,” Dec. 6, 2012.)
Of course, as professional plan advisors are aware, clients don’t have to be corporate jumbos or even heavily capitalized players in order to succumb to the “urge to merge.” When the balance sheets align, markets collide and favorable financing appears on the horizon, your client could very easily be on the move. How can you position yourself effectively for this possibility? What can you offer to solidify your existing relationships? When will you be able to demonstrate value to the new players?
Retirement Plan a Top-of-Mind Concern? Not Likely
The first safe assumption you can make when the possibility of a merger or acquisition takes shape is that the retirement program is not at the top of anyone’s list. While that’s understandable, it’s also important that your client recognize a failure to address potential implications for a plan can be harmful. You can help avoid administrative complications, increased costs and plan disruptions by developing an M&A strategy.
As a trusted advisor, you have the latitude to think of the business move as an opportunity to take stock of retirement programs:
• Is it time to change providers?
• Does the investment policy statement need to be refreshed to reflect new realities? Should the investment lineup be simplified, expanded or just refreshed?
• What about plan administration? Is there a way to realize new efficiencies?
Take Stock and Assess the Situation
Obviously there’s a variety of regulatory and legal considerations when evaluating how to maintain the plan’s qualified status. One key area that’s often overlooked — and that can present significant problems with respect to nondiscrimination testing — is the existence of a controlled group. Controlling interests among the merging organizations can mean that a controlled group relationship exists. Testing will lead the way in correcting more favorable treatment for highly compensated employees.
Don’t Forget to Communicate with Employees
It can’t be said often enough: If you’re doing a great job of helping to build a cohesive organization, and no one knows about it but the principals, then you’re not really doing a great job. Communicating effectively with affected plan participants and employees is absolutely essential. And it’s not just about communication — it’s about the media you’re using to communicate. Failing to fully inform participants will mean your transition and conversion will be irretrievably lost, disappointing all involved parties and jeopardizing your standing with the new leadership team.
Laura Gaynor will join a panel — with Jeff McDonald of Principal Consulting Group/RIS Distribution Consulting and Maureen O’Brien of McDermott Will & Emery — for the “Key Considerations for Retirement Plan Conversions in a Mergers and Acquisitions Environment” workshop at the 2013 NAPA/ASPPA 401(k) Summit, Tuesday, March 5 at 9.30 a.m.
Transamerica Retirement Solutions does not provide tax, legal, insurance, or investment advice and nothing presented herein should be construed as a recommendation to purchase or sell a particular investment or follow any investment technique or strategy.
FA - 11801 (2/13) ©2013 Transamerica Retirement Solutions Corporation. Used with permission.
