Don’t get surprised at audit time. Stay compliant when handling the 401(k) or benefits plans during a merger or acquisition.

Merging or holding companies? Buying a business? “What will happen to our 401(k)?” is a question that rarely comes up. But the last detail you consider in the transaction may be the one that gets you into hot water. 

This is especially true among the smaller businesses that make up most of our clients. Team members may wear multiple hats and be busy with the transaction itself. There may not be a dedicated plan sponsor who scrutinizes merging benefits plans.


Case Study: A franchise purchases multiple agencies

One of our clients, a health franchise, bought about four or five practices in the space of a year. Each acquired clinic came with its own 401(k) plan.

Our annual plan audit turned up the requirement that when a new company joins, they need to sign a joinder agreement, a contract adding the new parties (the acquired clinic’s employees) to an original contract (the franchise’s existing retirement plan).

So, we requested, “Do you have these agreements?” 

“Well, I just joined the company. So, I’m not sure who writes our plan document.” After some research, “Oh, this attorney in Raleigh handles it.” 

We emailed him. “Yes, I created those joinder agreements,” he confirmed. They were never executed due to staffing turnover at the plan sponsor.

As auditors, we can only work with the documentation that we’re provided, so we had to assume that the agreements didn’t exist or they were not signed. With no signed agreements, the plan was out of compliance and had an operational failure. 

As a result, the company needed to make the necessary plan corrections and pay hefty fines. And they may be more likely to be audited by the IRS or Department of Labor in the future. 


401(k) plans and M&A transactions: What to consider

We’re auditors, not advisors. So we can’t tell you what to do. But this is what we’ll look for come audit time: 

Document, document, document. 

We request the same level of documentation across acquired companies that we do for you. Plan documents, joinder agreements, and employee payroll records, as far back as required, should all be accessible—preferably electronically.

Perform your due diligence. 

Review the acquisition’s past benefits plan audits. Have they been in compliance? What policies and liabilities are you inheriting with the added plan?

Figure out what you need to do to stay in compliance. 

Work with experts to weigh the advantages of combining plans against the disadvantages. Here are some great articles to get you started: 


Don’t get surprised at audit time. Stay compliant when handling the 401(k) or benefits plans of an acquired company.

If your company is experiencing a merger or acquisition, or if M&A is one of your firm’s primary growth strategies as a holding company or franchise, you’ll want to pay particular attention. 401(k) plans are likely the lowest on your list of priorities—but don’t overlook them. 

There may be things you have to do prior to closing the transaction to stay in compliance. Don’t wait until after the merger or acquisition to sort out the details!

Then, when you’re ready for your audit, work with an experienced firm dedicated to nothing but benefits plan audits. Many of our clients buy, sell, and merge with companies as a part of their day-to-day business. Contact Cassell Plan Audits today to learn more.