Op-ed: Here’s what you need to know about retirement savings if your employer merges or is acquired

Regardless of the size of your company, there are federal laws that protect many aspects of employee benefits.

The Employee Retirement Income Security Act, or ERISA, for example, ensures that vested employee benefits aren’t adversely impacted because of an M&A transaction. As such, the primary purpose of ERISA is to ensure plans are properly integrated while maintaining employees’ vested rights. 

Employees may be understandably concerned over potential changes to their retirement benefits during an M&A transaction, but there are often new retirement options that are an even better fit than their existing plan. 

Here’s what an M&A deal can mean for defined-contribution plans such as 401(k) plans:

• New investment options: Depending on the situation, employees may gain access to entirely new investment options which could improve their overall retirement outlook. However, employees may have to become comfortable with a new user interface on a different investment platform. 

• Adjusted contribution levels and matching policies: Changes to contribution limits and employer match policies may be more generous than in an employee’s previous plan. It may also be less competitive in some cases.

• Amended vesting schedules: Adjustments to the vesting schedule – how long an employee has to work in order to access the entirety of their benefits – may also occur. This could mean earlier access to retirement benefits, or added restrictions.

• Transition to a new plan: If an employer decides to completely replace an existing plan, employees will need to educate themselves on the changes to their benefits and pros and cons of each new plan option.

While pensions are less common today, there are still many people who rely on them or are planning to utilize pension benefits in their retirement. These pension funds can undergo dramatic changes during an M&A transaction, so employees should remain vigilant to any proposed changes to the pension program. 

Here’s what an M&A transaction can mean for pension plans:

• Continuation under new ownership: The new company may choose to continue the pension program with as few changes as possible. This is typically the most employee-friendly decision. 

• Freezing pensions: If the new or larger organization decides to freeze pensions, existing benefits will still be provided, but new employees will not be afforded access. 

• Termination of pensions: In some cases, employers may decide to cut pensions entirely. In these cases, employees may receive a lump sum as compensation for the elimination of the pension program. 

Thanks to protections from ERISA and other legal guidelines, employees are safeguarded and can’t “lose” existing money. Companies are prohibited from moving or removing funds that are already contributed by employees, and all vested benefits are secured. 

That said, there are some important long-term implications to keep in mind:

• Market performance and individual goals: When you change your investment options or contribution amounts and schedules, your projected retirement savings are also likely to change in some way. This is important to monitor, especially if you have retirement milestones that you are expecting to reach. 

• Stage of life: Employees who are closer to retirement age are naturally going to feel that any changes may impact their future more acutely. 

The primary takeaway being existing balances are always secure, but unvested contributions or benefits an employee is expecting to gain in the future may not always carry over to a new plan. Employees should always review all documentation associated with a new retirement plan to fully understand how the changes will impact their short and long-term financial goals. 

Employees also have certain legal protections under ERISA that ensure they receive advance notice of any material plan changes, and companies are generally obliged to provide training, documentation and access to additional resources to all employees. 

The changes brought on by an M&A transaction can be challenging for even the most seasoned and well-informed employees. Therefore, it is important that employees always utilize the tools at their disposal to protect their financial outlook, especially when retirement is approaching.

Stay informed, ask questions and ensure your financial goals remain on track.

—By Rick Calabrese, Esq., a certified public accountant and co-founder of advisory firm Commonwealth M&A.