Sheri Terens explains what to consider during a merger or acquisition to make sure your employee benefit plan remains compliant.
Employee benefits plans are necessary but can be complex, especially when mergers and acquisitions are in the picture.
When is an audit required?
The Employee Retirement Income Security Act of 1974 (ERISA) ensures that plan assets are protected by requiring fiduciary responsibilities.
Simply put, if your business offers 401(k), 403(b) or other type of pension, and has 100 or more eligible participants, an independent audit and Form 5500 must be submitted to the U.S. Department of Labor (DOL) and Internal Revenue Service (IRS).
The 80-120 Participant Rule
This ruling allows plans with between 80 and 120 participants, as of the 1st day of the plan year, to file the Form 5500 in the same category (“large plan” or “small plan”) as indicated on the prior year Form 5500 filing.
- Benefit plans with less than 100 eligible participants
- Required to file Schedule I
- No audit is required
- Benefit plans with 100 or more eligible participants
- Required to file Schedule H
- Required to include audited financial statements with the plan’s annual Form 5500 filing
How can mergers and acquisitions affect employee benefit plans?
During mergers or acquisitions, companies have three options for their employee benefit plans: the purchaser becomes the plan sponsor, the plans merge or both plans are terminated to create a new plan entirely.
Whichever path is decided on, fiduciary issues must be explored. For merged plans, does your number of eligible employees classify your plan as a large plan? This means you will need to conduct an independent audit.
Although employee benefits are not top of mind during a merger or acquisition, merging benefit arrangements can become a challenge. Avoid a team audit conducted by the IRS and unexpected penalties by ensuring your plan is compliant.
Navigating employee benefits can be challenging, but we’re here to help. If there is a merger or acquisition in your future, call us with questions!