Employee Benefits Legal Blog : Employee Benefits Lawyer & Attorney : Fox Rothschild Law Firm : Health Care, Retirement, ERISA : Philadelphia, New York, Northeast

I happen to be working with a matter that involves an acquisition of a company that occurred several years ago and the crux of the debate involves liability for administration of the retirement plan of the acquired company.  As I read the purchase agreement, it struck me that it was virtually silent as to benefit plans and what would happen after the acquisition took place.  I have previously written here about COBRA in an entry titled Buyer Beware, and I have also written an article about withdrawal liability, Withdrawal Liability: a Hidden Hazard, both talking about concerns in acquisitions.  But I really believe benefit plan due diligence is an overlooked afterthought to many acquisition transactions.

It is important to remember that those representations and warranties in an agreement actually mean something.  If a representation is made about the status of a benefit plan being in compliance, that is not the end of it.  The parties must include in the contract how they intend to deal with the various benefits plans once the transaction is completed.  For example, will there be a need to terminate a plan?  Will there be a need to merge plans?  Who takes responsibility for funding?  What about multiemployer plan obligations?  The simple truth is that benefit plans don't just simply cease to exist.  They are living entities that likely survive beyond the transaction and can cause real problems for the buyer and the seller both if not properly handled.

It is commonplace in asset purchases for the buyer to immediately hire the employees of the acquired company and make them employees of the buyer.  But the acquired company's retirement plan still exists.  What will happen to it?  Is the buyer going to take the plan and merge it into its own 401(k) plan or is the seller terminating the plan?  If the seller ceases to exist, this could create an "orphan" plan where the plan sponsor no longer exists.  From a seller's perspective, the Department of Labor and IRS will not look favorably on someone simply walking away from fiduciary duties.  From the buyer's side, you would not want to get caught up in the search for someone to take over the responsibilities of plan administration.

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Some useful guidance has come out recently on Health Savings Accounts (HSAs) from the IRS so I thought they would be worthwhile to briefly summarize and pass on.

Notice 2008-52 gives us considerable guidance on the impact of amendments to Code Section 303 and 305 as they relates to HSAs. First,there is guidance on determining the maximum contribution limits for years 2007 and later. It is defined as the greater of (1) the sum of the limits determined separately for each month under Section 223(b)(2), based on eligibility for HDHP coverage on the first day of each month, plus catch-up contributions for each month, OR (2) the maximum annual HSA contribution under Section 223(b)(2(A) of (B) based on the individual's HDHP coverage (self or family) on the first day of the last month of the individual's taxable year, plus catch-up contributions, if applicable. For 2008, the self coverage (Section 223(b)(2)(A)) is $2,900. For family (Section 223(b)(2)(B)), the limit is $5,800.

2008-52 is also useful for determining when HSAs may be established and has 15 examples dealing with timing and funding.

Notice 2008-51 provides guidance on qualified HSA funding from an individual's IRA or Roth IRA.  Code Section 408(d)(9) generally provides that funding an HSA from an IRA or Roth IRA is not included in gross income, provided eligibility requirements are met.  There are maximum amounts of funding that can occur based on the limits established by the Code.  Those would include the limits set forth in Notice 2008-52 above.  What I found most useful about this notice is explanation of the procedures for making the transfer and the testing for eligibility.  The notice provides us with 10 examples of various funding scenarios to test the applicable limits of the funding.

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