Retirement Plans

1. Qualified retirement plans

a.    Pension plans

b.    Money purchase pension plans

c.    Defined contribution plans

d.    401 (k) plans

2. Section 403 (b) tax-sheltered annuity plans ("TSAs")

3. Section 475 plans

4. Non-qualified deferred compensation plans (typically for executives)

    Welfare Benefit Plans

1. Group health plans

a.    Fully-insured plans

b.    HMO plans

c.    Self-insured plans

2. Group dental plans (may be part of group health plan)

3. Group vision plans (may be part of group health plan)

4. Prescription drug plans (may be part of group health plan)

5. Disability plans

a.    Short-term disability plans

b.    Long-term disability plans

6. Group term life and/or AD&D insurance plans

    Fringe Benefit Plans

1. Section 125 plans (e.g., cafeteria plans, flexible benefits plans)

2. Educational assistance plans

Compare Like Plan to Like Plan

In doing so, the following questions should be answered:

A.    Who is the insurer or provider of each plan?

B.    What are the eligibility rules? Are they similar?

C.    What benefits are provided under each plan? Again, are they similar?

D.    What is the plan year of each plan for renewal purposes and for enrollment/election purposes?

    Advantages of Combination

1. IRS nondiscrimination rules. The IRS imposes certain nondiscrimination rules with respect to qualified retirement plans. TSAs, self-insured group health, dental, vision and prescription drug plans, and Section 125 plans. The general purpose of the nondiscrimination rules is to ensure that a plan does not impermissibly favor the employer’s highly compensated employees (i.e., generally, employees with annual compensation of more than $80,000).

   During a transition period after a merger (i.e., generally through the last day of the first full plan year following the merger) the merged entity is not required to satisfy the IRS nondiscrimination rules on a merged entity basis. Rather, each pre-merger employer can continue to satisfy the rules separately. However, following the end of the transition period, the nondiscrimination rules must be satisfied on a combined, merged entity basis.

2. Underwriting requirements. If an employee benefit plan is provided through insurance, the insurer may impose certain underwriting rules with respect to a policy, requiring a minimum percentage of the employer’s workforce to be eligible for the insurance benefits. Usually, the underwriting requirements are imposed with respect to the entire employer following a merger. Thus, with respect to employee benefit plans provided through insurance, it may be necessary to maintain a single policy covering all employees following the merger in order to satisfy the underwriting requirements. At a minimum, the underwriting requirements should be reviewed with the insurer following the merger.

3. Ease of transferability. If the merged entity anticipates transfers between the former separate employers, combining employee benefit plans will make it easier to transfer employees.

4. Cost containment. due to the increased number of employees of the combined entity following a merger, the merged entity may be able to negotiate more favorable rates and fees with one provider or insurer. Further, it may be less costly from an administrative standpoint to administer one plan rather than two.

5. Morale. Combined employee benefit plans are likely to be favorably received from a morale standpoint. Employees will feel like they are all part of one organization and one team if they are all treated the same way with respect to employee benefits.

    Disadvantages of Combination

1. Distinct identities. Even though two or more employers may merge, the employers may continue to maintain separate identities in terms of purpose and/or workforce. Where distinct identities exist, it may make it more difficult to combine employee benefit plans.

2. Distinct geographic locations. If two or more employers merge and the employers are located in distinct geographic locations, it may be difficult to locate a single provider or insurer to provide a single employee benefit plan. Further, where facilities are located in distinct geographic locations, employers may face different problems in attracting candidates for employment. This may also make it necessary to tailor employee benefit plans to attract and retain employees.

    Design Steps

1. First, the merged entity should identify who will be the provider and/or insurer with respect to each combined employee benefit plan.

2. Next, the merged entity should establish what the eligibility rules for each combined employee benefit plan should be.

3. The employer should then identify the level of benefits to be provided under each combined employee benefit plan.

    Logistical Concerns

1. The merged entity should determine whether an employee benefit plan of one of the predecessor employers can be merged into the corresponding employee benefit plan of the other predecessor employer or whether both plans should be terminated and a new plan should be created.

2. Regardless of whether one plan is merged into the other or the plans are terminated and a new plan is created, there may be transition rules which will need to be established concerning what the plan year will be for eligibility and election purposes. It may be necessary to create a short transition plan year for these rules.

3. Particularly relating to any group health, dental, vision or prescription drug plans, or Section 125 plans, if the combination is occurring before the end of the plan year, there will need to be coordination for purposes of crediting deductibles, copays, maximum benefits and the carryforward of elections through the transition period.

4. There should be consideration taken as to whether employees should be given credit for length of employment with the predecessor employer for purposes of eligibility, and in the case of a retirement plan, vesting and benefit accrual.