When a company buys another company, everyone focuses on revenue, contracts, employees, customers, real estate, and debt.
The retirement plan usually gets discussed later.
That is a mistake.
When you buy a company, you may also be buying years of benefit-plan problems. Maybe the acquired company failed to enroll employees on time. Maybe the match was calculated incorrectly. Maybe the plan document does not match how the plan was actually operated. Maybe there are late deposits, unresolved testing failures, missing participants, bad loans, or Form 5500 issues.
Those problems do not magically disappear at closing.
Retirement-plan due diligence should happen before the deal is completed, not after somebody asks what to do with the acquired company’s 401(k) plan.
You also need to understand how the transaction affects controlled-group status, eligibility, service credit, testing, and whether the acquired plan will continue, merge, or terminate. Those decisions can have significant consequences.
I have seen too many situations where the deal closes first and the benefits discussion begins second.
At that point, the choices may already be limited.
The buyer suddenly learns that the acquired company maintained a plan nobody fully understood or that a supposedly terminated plan was never properly terminated. Now everybody wants an immediate answer because payroll has to run next week.
That is not due diligence. That is cleanup.
Plan sponsors should bring ERISA counsel, the TPA, and other appropriate benefit professionals into the transaction early enough to identify problems before they become inherited problems.
Nobody likes discovering liabilities after the purchase price has already been paid.
If you are buying a company, you are not just buying its assets and employees. You may also be buying every retirement-plan mistake it made before you arrived.
Find those problems before closing, because afterward, they may be yours.