Employee benefit plans range from a single insured health policy to a portfolio of retirement, welfare, and executive arrangements, and each type carries a different set of obligations. Employers often add plans one at a time as they grow, with different vendors and documents, and only see the whole picture when a buyer, auditor, or agency asks for it. We map what you have, make sure each plan is properly documented and operated, and plan for the events that change benefits most, especially mergers, acquisitions, and reorganizations, where benefit decisions made in the weeks before closing have long consequences.
The Main Types Of Plans
Most plans fall into a few categories. Qualified retirement plans include 401(k), profit sharing, cash balance, and traditional defined benefit plans, all subject to Code Section 401(a) and ERISA's vesting and fiduciary rules. Welfare plans provide medical, dental, disability, life, and similar benefits. Nonqualified plans, such as deferred compensation and supplemental executive retirement plans, are usually unfunded and limited to a select group of management or highly compensated employees under ERISA's top-hat exemption, and they are governed by Section 409A. Fringe benefits like educational assistance, dependent care, and commuter benefits have their own Code sections. Severance plans can be ERISA plans if they involve ongoing administration.
Plan Documents And Employer Obligations
Every ERISA plan needs a written plan document that names a fiduciary, describes funding and amendment procedures, and sets out benefits and claims rules, plus a summary plan description written for participants. Qualified retirement plans often use a pre-approved document from a vendor, which must be restated on the IRS cycle, while larger or unusual plans may use an individually designed document. Employers must distribute SPDs and summaries of material modifications, file Form 5500 where required, fund benefits on time, and hold plan assets in trust. Top-hat plans need a one-time DOL statement. In CIGNA Corp. v. Amara, the Supreme Court held that an SPD does not itself set plan terms, which makes the plan document controlling.
Benefits In Mergers And Acquisitions
Benefits diligence asks what the buyer inherits. In a stock deal, the target's plans and their liabilities come along, including operational errors, late deposits, and any pension or multiemployer withdrawal liability. Under Code Section 414, companies under common control are treated as one employer, so an acquisition can cause plans to fail coverage testing once the Section 410(b)(6)(C) transition period ends. If the buyer does not want the target's 401(k) plan, the target's board usually terminates it effective before closing, because afterward the successor plan rule can block distributions. A surviving plan can be merged into the buyer's plan once errors are corrected. We run the diligence, draft the representations and indemnities, and plan the terminations, mergers, and employee communications.
Disputes Over Plans And Deals
Disputes arise both inside the plan and around the transaction. Participants bring claims for benefits, challenge amendments that reduce accrued benefits in violation of ERISA's anti-cutback rule, or allege interference with benefit rights under Section 510 after a layoff. After a deal, buyers and sellers dispute indemnity claims for undisclosed plan liabilities, purchase price adjustments for benefit accruals, and who bears the cost of correcting errors found after closing. Executives contest whether a transaction triggered change-in-control payments. We handle these matters in claims and appeals, in arbitration under the purchase agreement, and in federal and state court, and we start by reconstructing what the plan documents and deal documents actually said at the time.
Practical Steps Before A Transaction
Before a sale, gather every plan document, amendment, SPD, recent Form 5500, testing result, and service agreement in one place, along with all executive and change-in-control agreements. Fix known errors through the IRS and DOL correction programs before a buyer finds them and prices them into the deal. Decide early whether the 401(k) plan will be terminated, because the board action must happen before closing. Check whether a Section 280G shareholder vote is available and needed. Identify which entities will be in the combined controlled group. Keep employee communications consistent with the deal timeline, since informal promises about benefits made during a transition can later be argued as plan terms or contract rights.
