Tag Archives: employee benefits

Employee benefit plan considerations for M&As

This blog is the first in a series of six that will highlight considerations for and impact of employee benefit plans on mergers and acquisitions (M&A) transactions. To learn how Milliman consultants can help your organization with the employee benefits aspects of M&As, click here.

Seventy-five percent of U.S. employers in the 2017 Global Capital Confidence Barometer survey say they plan to pursue M&A deals in the next 12 months.

This follows a year that saw a number of large transactions—AT&T and Time Warner for $84 billion, Bayer’s acquisition of Monsanto for $66 billion, and the merger of Sunoco Logistics Partners and Energy Transfer Partners in a $21 billion all-stock deal.

No matter whether it’s a billion-dollar transaction or something much, much smaller, employee benefit plans are a critical component of the deal. They can impact the purchase or sale price, and create both financial and compliance risks if comprehensive due diligence is not completed.

The following tips will be helpful as you consider the employee benefits component of the deal—no matter which side of the table you’re on.

1. UNDERSTAND THE RISKS
Due diligence is a critical first step in a merger or acquisition transaction. Because the new entity (buyer or merged organization) is generally responsible for the employee benefit plans, including liabilities, it’s important to have a clear and complete picture of the plans and any associated risks before the deal is closed.

Don’t rely on the seller’s representation of the condition of the benefit plans. Market conditions may have changed since the plans were valued—including changes in asset performance and market interest rates. There may be unfunded pension liabilities, tax penalties that are due to noncompliance, or even potential lawsuits because of nondisclosed but promised retiree benefits. They all can impact the purchase price and the deal negotiation.

Be sure to get your employee benefits consultant, plan actuary, and recordkeeper involved early in the due diligence phase. If you wait to think about benefits until after closing, it’s too late. The deal is done—and you may have unintentionally acquired some risk, and without proper adjustments to the purchase price

In addition, appropriate, well-timed communication is critical to talent management—the most critical asset in the deal. Retention of key management is sensitive and important. Communicating the strategic vision and benefits of the transaction to employees is a key component to the success of any transaction.

2. PUT IT IN PERSPECTIVE
As you consider the impact of benefit plans on the transaction, also take into account how the type of deal—asset or stock—can impact the buyer’s or seller’s perspective. See the chart below for a high-level overview.

3. ASK GOOD QUESTIONS
Finally, don’t wait until after closing to develop a game plan for integration. Ask questions. Consider options. Dig into the details.

For example:

• Will you terminate, spin off, merge, or go with stand-alone compensation and benefit plans?
• How will you map investments?
• Will you reenroll current employees? Auto-enroll new employees?
• Are there union issues?
• How will you handle vesting and loans?
• What’s the impact of current legal or regulatory activity?
• How do the employee demographics differ?
• How do the two cultures fit?
• Which benefit plans and features best fit the new company strategy and its employees?
• What should the new executive and broad-based compensation programs look like?
• What acquired employees are critical to retain?
• What communication and programs need to be in place to retain key talent?

All are good questions—and how you answer them can impact the transaction and potentially the sale price. Know the answers up-front and you can mitigate risk and ease the transition.

Milliman & Barnett Waddingham announce pensions joint venture

Milliman and Barnett Waddingham, UK’s largest independent provider of actuarial, administration and consultancy services, today announced a joint venture.

Operating under the name of MBW International, the joint venture brings together the significant expertise of the two independent firms to deliver superior global retirement benefits advice to companies with headquarters in the UK and global companies with UK operations. The new organisation will offer truly independent global pensions advice from a single source, with full access to the experience and resources that live within the Barnett Waddingham and Milliman businesses. It will follow their shared values of providing quality, independent advice to their clients.

Nick Salter, Senior Partner at Barnett Waddingham, said: “MBW International will allow us to extend our global pensions expertise to support the full needs of multinational organisations with their overseas pension arrangements, whilst retaining the independent ownership structure of Barnett Waddingham. Clients of MBW International can expect to receive the same high quality, independent advice that Barnett Waddingham and Milliman are already known for.”

Steve White, Milliman CEO, said: “The establishment of MBW International enhances the range of retirement consulting services Milliman can offer its multinational and UK-headquartered clients. The obvious synergies between Milliman and Barnett Waddingham are built on our shared values: Independence, quality, and dedication to superior client service.”

Recruiting a workforce with intergenerational strategies

By 2020, five generations will work together at some companies for the first time. Human Resources (HR) departments that prepare to meet the different needs of each generation will secure the best talent. A recruitment approach that aligns corporate business strategies, internal equity, and employee compensation can be an effective strategy. Milliman’s Anthony Halim offers perspective in his article “Effective intergenerational employee compensation approaches.”

Quantifying retirement programs competitiveness

In this case study, Milliman’s John Wukitsch and Neil Hagin explain how a “peer group” analysis helped one large employer gauge the competitiveness of its retirement benefits program. The analysis provided a comparison of five competing programs, demonstrating to the employer that it needed to offer more generous retirement benefits to keep employees satisfied and retain key talent.

Calculating employee benefit costs in Indonesia

Indonesian Financial Accounting Standard (PSAK) 24 requires companies to report their employee benefit costs, including all associated taxes, on a gross basis. Calculating tax obligations in accordance with PSAK 24 can be complicated for companies that operate a net payroll system. In her article “Gross up for net benefits systems,” Milliman’s Gita Tanatika highlights methods employers can use to determine total gross benefits.

President signs transportation bill repealing recently enacted Form 5500 filing extension

Congress has approved, and the president has signed, the Fixing America’s Surface Transportation Act (H.R. 22). The new law, which funds highway and mass transit projects, contains a provision that repeals the three-and-a-half month automatic extension of the Form 5500 filing due date. The extension was part of a law, the Surface Transportation and Veterans Health Care Choice Improvement Act (P.L.114-41), enacted in July that would have applied to filings made in 2017 for plan years beginning after 2015.

The repeal of the automatic extension means that the filing deadlines for Form 5500 (Annual Return/Report of Employee Benefit Plan) will not change from today’s deadlines: Employee benefit plan sponsors must file Form 5500 by the end of the seventh month following the end of the plan year, with a two-and-a-half month extension available. For calendar-year plans, the due date is July 31, with an extension to October 15 for those filing a Form 5558 in a timely manner.

The repeal also means that other filing deadlines, e.g., for Internal Revenue Service (IRS) Form 8955-SSA, and participant notification dates that are coordinated with the Form 5500 filing date, e.g., Summary Annual Report distributions, will not change.

For additional information about this revised and repealed Form 5500 filing deadline, please contact your Milliman consultant.