Four considerations when merging retirement plans

Memorial Day marks the unofficial start of summer, which also marks the unofficial start of ice cream season.  My dad is known as the homemade ice cream king of his county.  For sixty-five years all he made was vanilla – which was always a big hit.  And then he shocked us – he decided to merge flavors (such as black raspberry – yum!) into his famous recipe.

Much like my dad’s decision to merge flavors and add options to his ice cream legacy, options exist for retirement plans in a corporate transaction.  Depending upon the variables that come into play as a result of the corporate transaction, there are three primary retirement plan options to consider:

  • Maintain separate plans
  • Merge the plans
  • Terminate a plan

While my dad’s vanilla ice cream is excellent, he had good reasons to merge in some new flavors.  There are also reasons why merging retirement plans may be a good idea.  (Note: other blogs are covering the maintaining separate plans and terminate options.)

Merging IRAs

Plans may need to be merged because they are not able to meet the minimum coverage requirements as separate plans. Maybe a decision was made to merge plans to gain efficiencies.  (These same reasons may also apply when enjoying ice cream – coverage is usually a concern and being efficient prevents unnecessary melting!)  Whatever the reason, there are four considerations that should be addressed when merging retirement plans.

  • Timing

Get involved in the pre-merger discussions about retirement plans, because waiting until after the effective date of the transaction can limit your options.  Give yourself plenty of time to review and determine your next steps.

  • Continuation of Contributions and Loan Payments

Review the process to ensure the remitting of elective deferrals and loan payments and the allocation of employer contributions will be handled correctly and seamlessly throughout the transition phase of the plan merger.

  • Participant Enrollments

Participants may need to satisfy plan entry requirements in the merged plan.  You’ll want to ensure they have the opportunity to make elections related to elective deferrals and investment options.

  • Plan Document Changes

Items related to the merged plan’s design and definitions should be determined and acted upon prior to the completion of any plan merger. Waiting until afterwards could limit your options and perhaps lead to operational issues.

When it comes to eating my dad’s ice cream the primary consideration I have is how much I can eat before getting an ice cream headache.  Be aware of these four considerations when merging retirement plans – if you don’t, the headache each can cause may not go away quite as quickly.

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 Affiliation Disclosures

Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group®, (The Principal®), Des Moines, IA 50392.

t15042902q0 – 5/2015