Csp Q37

Front 1

QBS 37: 1 of 25
5 critical stages of M&A activity

Back 1

1) Due diligence
2) Effecting the transaction
3) Understanding the complex transition issues
4) Designing retirement programs after the sale
5) Managing the programs after the sale

Front 2

QBS 37: 2 of 25
Objectives of due diligence

Back 2

1) Identify, quantify and obtain coverage of all risks and liabilities
2) Gain a full understanding of:
a) Benefits and compensation programs
b) HR structure
c) Culture
3) Identify actions required for post-acquisition integration

Front 3

QBS 37: 3 of 25
Materials to be collected for diligence stage

Back 3

1) Plan documentation
2) Detailed compliance tests
3) Administrative reports
4) Miscellaneous reports

Front 4

QBS 37: 4 of 25
Plan documentation items to collect

Back 4

1) Correct name of each plan and the employees it covers
2) Retirement plan document, amendments and board resolutions
3) SPD and SMM
4) Owner data
5) IRS determination letter
6) Union arrangements
7) Undocumented promises
8) Policies, certificate or other contracts relating to plans

Front 5

QBS 37: 5 of 25
Detailed compliance tests to collect

Back 5

1) Nondiscrimination testing results
2) Top-heavy testing results
3) PBGC notifications

Front 6

QBS 37: 6 of 25
Administrative reports to collect

Back 6

1) Financial statements
2) Actuarial reports
3) Administrative procedures
4) Trust agreement and statements
5) Census data
6) Employee reports
7) Employee communications, forms and notices
8) Form 5500's
9) PGBC filings
10) List all service providers even if no agreement can be found

Front 7

QBS 37: 7 of 25
Miscellaneous reports to collect

Back 7

1) Reportable events
2) Litigation history
3) IRS Voluntary Compliance Program filings
4) IRS, DOL or PBGC audit information
5) Funding waiver requests
6) Service contracts
7) IRS Form 5330

Front 8

QBS 37: 8 and 9 of 25
Understanding complex transition issues includes
(1 and 2 of 2)

Back 8

1) Understanding the entire benefits process
a) Administration
b) Regulation
c) Communication
d) Disclosure
2) Understanding fiduciary and governance differences
3) Determining if the following items need to be reviewed regarding the purchaser's existing plans
a) In the nature of the investments held
b) Its investment policy
c) Its asset allocation

Front 9

QBS 37: 10 of 25
Critical retirement benefit elements to be included in the sales agreement

Back 9

1) Name of each of the seller's retirement plans
2) Plans purchaser agrees to continue
3) Plans seller agrees to continue
4) Plan participant-group obligations remaining with the seller and those transferring
a) Decide how to detangle purchased until members mixed with other employees of the seller
5) Stipulation regarding on-going coverage for transferred programs
6) Remediation process
7) Basis for valuing and adjusting pension obligations

Front 10

QBS 37: 11 and 12 of 25
DB issues to consider while/after gathering information
(1 and 2 of 2)

Back 10

1) Look for unusual and noncompliant plan document provisions
2) Confirm SPD
a) Is it up to date
b) Adequate describe the benefits
c) Is consistent with the plan document
3) Look for prohibited or unusual transactions in Form 5500
4) Determine funded status of plan using buyer's assumptions
5) Additional PBGC premiums due to the plan's funding level
a) Are there potential PBGC liabilities due to reported transactions
6) How do trustees fees compare to buyer's fees
7) Do nondiscrimination tests reveal problems
a) How will M&A affect tests for buyer's plans

Front 11

QBS 37: 13 of 25
DC issues to consider while/after gathering information

Back 11

1) When are company contributions made
2) Are employee contributions required
3) Are employee contributions deposited timely
4) Does plan comply with IRC Section 404(c)
5) What financial advice is provided and does it meet DOL guidelines
6) Have all required tests been completed
7) Are contributions for HCEs cut back
8) How will M&A affect tests for buyer's plans

Front 12

QBS 37: 14 of 25
Multi-employer and multiple-employer issues to consider while/after gathering information

Back 12

1) Agreement for participation
2) How contributions are determined
3) Target company's share of total plan contributions
4) Withdrawal liability allocation methodology
5) Are any withdrawal payments being made

Front 13

QBS 37: 15 of 25
Non-qualified plan issues to consider while/after gathering information

Back 13

1) DOL notice concerning the existence of top hat or excess plan
2) Copies of any rabbi or secular trust
a) Will the M&A trigger payments
3) How does coverage requirements compare to buyer's
4) Is the right to amend/terminate plan preserved
5) How plan's unfunded status been communicated

Front 14

QBS 37: 16 and 17 of 25
Decisions that need to be made concerning the integration of new employees into the employer's retirement plan
(1 and 2 of 2)

Back 14

1) What retirement benefits should be provided to the new employees?
a) The same benefit as other employees
b) A different benefit that is higher or lower
2) Which plan should provide the benefits?
a) If the same benefit provided can expand coverage under the existing plan
b) If separate benefits then either bring them in and define a separate formula or keep the plans separate
- Decision regarding which plan should provide benefits affected by:
i) Plan administration
ii) Employee communication
iii) Nondiscrimination requirements

Front 15

QBS 37: 18 of 25
Ways to minimize administrative complexity of transfers

Back 15

1) minimize the number of transfers
2) Have a single plan

Front 16

QBS 37: 19 of 25
Additional Plan mergers and spin-offs considerations

Back 16

1) Plan member must be entitled to benefit at least as large as benefit accrued at time of plan merger
2) Accrued optional forms of benefits must be protected by the recipient plan
3) Value of assets spun-ff can't be less than the sum of the PV of benefits on a termination basis

Front 17

QBS 37: 20 - 25 of 25
Issues regarding sales, mergers and acquisitions
(1-6 of 6)

Back 17

1) Employee Issues
1) Protection of accrued benefits
2) Continuity of benefits under new owner
3) Disposition of surplus
2) The Accrued Benefits Issue
- Ee may expect periodic updates to continue if sponsor has provided in the past
- Vendor may say liability shouldn't reflect salary increases after closing date and try to:
a) Receive a refund of surplus
b) Transfer a reduced amount of pension assets to the purchaser's plan
c) Negotiate an increase in the purchase price
3) Assets, Liabilities and Surplus Issue:
- Need to consider whether:
a) Benefits and liabilities should continue to be administered by vendor, or
b) If the plan should be would up and distributed, or
c) If an appropriate amount of assets should be transferred to the purchaser's trust
4) Pricing Issues
- Two companies may have different accounting policies
- Distorts price of sale
- Vendor and purchaser should review methods and assumptions up front
5) Procedural Issues
- Parties should meet early to determine their position regarding:
1) Accrued benefits
2) Transfer of assets
3) Transfer of liabilities
4) Disposition of surplus or unfunded liability
5) Likely continuity or change in benefits following merger
- Purchase offer and subsequent purchase agreement should state:
1) Nature of the transaction
2) Whether or not the employment relationships continue
3) Intent of both purchaser and vendor regarding the pension plan and fund
4) Provisions of the pension plan and trust agreement