Your Company Was Acquired!  What Happens To Your 401(k) Money?

By Clifton Linton
Writer, mPower

When John Fletcher's company was bought by a larger firm, he worried about the money in his 401(k) plan.

His biggest concern was that he would have to put his six-figure balance into his new company's plan, which offered less desirable investment options. "It wasn't the best of funds," he said.

Fortunately, Fletcher's company closed out its 401(k) plan just before the acquisition was finalized. The timing of that move gave Fletcher, 54, and his coworkers the chance to roll their money into IRAs and invest in a wider choice of funds.

In today's fluid business environment, mergers and acquisitions seem to be occurring at an ever-more-rapid rate. But workers often have little or no say about what happens to their retirement benefits when their employer is acquired. Understanding the process can help reduce surprises.

Nothing's Guaranteed Except Vesting

The scene is a familiar one, flashbulbs pop as two grinning CEOs shake hands after announcing a recently completed merger. What's not familiar is the gritty grunt work that comes with trying to combine the two companies' benefits packages. It's a job that can be fraught with pitfalls because each 401(k) plan is unique. The employer designs the plan. And it's likely some employee will be upset about losing a prized benefit.

When two companies merge, the disposition of retirement plans is often an afterthought.

"The retirement plan is always the last thing people look at," Fletcher said. "A lot of times it's looked at after the merger takes place."

By that time, employees may not have much flexibility with their retirement money. 

"Only the past is protected by federal law. In general, if you have $10,000 in an account, you will still have that." - Stuart Lewis employment attorney with Silverstein and Mullens, a division of Buchanan Ingersoll PC

"The participant has no options. It's up to the company's legal staff," said Linda Kravchick, director of operations with Ceridian Retirement Plan Services, a retirement-plan record-keeping firm.

To make mergers even messier to understand, the law provides few guarantees for employees. So, if your company was bought and you had a generous plan, don't expect that to continue, says Stuart Lewis, an employment attorney with the law firm of Silverstein and Mullens, a division of Buchanan Ingersoll PC.

"The future isn't protected. Only the past is protected by federal law," he said. "In general, if you have $10,000 in an account, you will still have that."

Say your 401(k) plan offered the following benefits: 10 investment choices, a 100% match on the first 6% of salary and a guarantee that employer contributions vest in two years. Which of those three does the law require to be carried over for existing employees?

Answer: the vesting.

"A company can change anything about the plan. The only thing they can't change is the vesting (for current employees)," Kravchick said.

A First Person Account

Fletcher's experience is instructive because he was not only a plan participant, but, as company president, also a key decision-maker. In April 1998, Cleveland, Ohio-based Century Business Systems bought Fletcher's company, National Retirement Planning. Fletcher is now a retirement expert with Century. 

"The retirement plan is always the last thing people look at. A lot of times it's looked at after the merger takes place." - John Fletcher Former president of National Retirement Planning

When the National-Century merger was discussed, one of the first things Fletcher did was look at the new company's retirement plan. The investments were a big concern. National had selected top-notch funds for its plan, while the Century funds didn't look as good. Fletcher didn't want his investment growth to suffer, and his employees had similar concerns.

Next: Three possible outcomes and what you can do

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