M&A Success: Retirement Plans, Loans, and the Hidden Opportunities Most Companies Miss

When companies prepare for a merger or acquisition, retirement plans often sit low on the priority list until they suddenly become the source of unexpected cost, compliance exposure, or employee confusion. As Paul W. Denu, Partner and Regional President for USI Consulting Group’s New York and Mid-Atlantic regions, explained during our discussion, “Retirement plans seem small until they become a big problem or a big opportunity.”

Successful M&A activity relies heavily on process, discipline, and clarity. That includes a benefits integration strategy that anticipates retirement plan decisions early. According to Denu, retirement plans hold financial, compliance, and cultural weight and overlooking them can lead to IRS penalties, costly corrections, and significant employee concern. “Employees watch their retirement savings closely,” he noted. “Uncertainty around their plan can erode morale quickly, especially during times of organizational change.”

Why Early Due Diligence Matters

Before a deal closes, buyers need a full understanding of the target organization’s qualified and nonqualified plans. This includes plan documents, amendments, Form 5500 filings, audit reports, actuarial valuations, vendor contracts, governance structures, and any outstanding compliance or operational issues. Defined benefit plans require careful review of funding assumptions and long-term liabilities.

This level of detail “helps uncover hidden risks that may not halt a deal, but can absolutely impact purchase price, timelines, or integration decisions,” Denu emphasized. Having the right experts involved early enables organizations to anticipate liabilities, evaluate plan design differences, and decide whether plans should merge, terminate, spin off, or remain separate.

Real-World Impact

Denu recounted a recent experience supporting a medical technology company with limited HR and Finance bandwidth during a fast-moving acquisition. USICG guided them through launching new 401(k) and deferred compensation plans, conducted a recordkeeper RFP, built a low-cost investment lineup, and met an aggressive implementation timeline. Without that level of hands-on support, the company would likely have faced delays, compliance issues, and diminished employee confidence.

The Complexities of 401(k) Loans and Plan Timing

One of the most common questions employees ask during an acquisition is what will happen to their outstanding 401(k) loans. The answer varies. Depending on whether the plans merge and whether the new provider accepts loan rollovers, some employees may be required to repay loans quickly or risk a taxable distribution. “Loan treatment needs to be identified and communicated early to avoid negative surprises,” Denu said.

Timing also plays a crucial role. The IRS 410(b) transition rule gives buyers until the end of the following plan year to align plans for compliance testing but certain actions can unintentionally void that relief. Similarly, Transition Service Agreements (TSAs), while helpful in keeping systems running post-close, can create bottlenecks if the organization remains on the seller’s platform for too long. Denu cautioned that TSAs “should be a bridge, not a permanent road,” noting examples where prolonged TSAs resulted in compliance failures and unanticipated administrative fees.

Unlocking Economies of Scale

Despite the risks, retirement plans also represent one of the most immediate opportunities for savings in an M&A. Harmonizing plans can streamline administration, lower recordkeeping expenses, and improve investment pricing. “When two mid-sized plans combine, the new scale can unlock institutional share classes and reduce costs for both the employer and employees,” Denu explained. With a thoughtful integration strategy, retirement plans can shift from a compliance hurdle to a strategic advantage.

Communication: The Most Underrated Component

Beyond the technical work, clear, timely communication is essential. Employees need transparency regarding loans, timelines, plan changes, and vendor transitions. Effective communication helps maintain trust, morale, and productivity areas commonly strained during M&A. As Denu pointed out, “Change management isn’t optional. It’s what determines whether employees stay engaged during the transition.”

Turning Risk Into Opportunity

For organizations preparing for a merger or acquisition, the retirement plan conversation cannot wait until after the deal closes. With proper due diligence, intentional timing, and strong communication, retirement plans can support a smoother transition and even reduce long-term costs.

To learn more about M&A benefits integration or to avoid costly surprises during your next transaction visit usicg.com or contact your USI Consulting Group representative.