What Does a Company Merger Mean For My 401(k)?

In the event that your current place of employment is bought out by another company, it’s likely you (the employee) will have little say in the matter. But when it comes to merging two businesses together, it’s the employees that can feel the biggest impact of this shift. While layoffs are a potential, and scary, side effect of a merger, a change in your position title, salary and benefits could be coming as well. How will a recent merger affect important benefits, like your 401(k) account? There are a few potential courses of action that your new company may take.

Types of Mergers

If you’re able to learn what type of sale took place, this may give you a better idea of how your benefits may be affected.

Asset Sale

As it sounds, a company will sell off certain assets of its business - such as the physical building it owns (or a lease), inventory, client list, etc. And in return, the buyer will take on certain liabilities (such as a mortgage payment).

Stock Purchase

Considered more “streamlined” in a sense, a stock purchase involves the buyer obtaining the seller’s majority share of stocks - meaning they now own the business as a majority shareholder. The buyer obtains all assets and liabilities. If there were certain assets/liabilities they were not interested in obtaining, these were sold off or taken care of before the sale.

Three Ways Your Benefits May Be Affected

The sale type will typically impact how your benefits will look moving forward.

If an Asset Sale Has Taken Place…

It’s likely that your original employer will maintain control over your 401(k) plan. It is rare that companies who acquire a business through an asset sale will make any changes to the 401(k) plan. If you already had one in place, it’s likely your accounts will be kept open and running as they did before.

If a Stock Purchase Has Taken Place…

In this scenario, your original employer no longer has control over the company - including the benefits offered. Three possible scenarios may occur:

Your plan may be terminated.
Your plan may continue uninterrupted.
Your plan may be merged.

#1: Your Plan May Be Terminated

If your new employer decides to terminate the original 401(k) plan, this could mean one of two things. Either the account is closed and the funds are distributed to you, or funds are not distributed and the account remains open, but you are not permitted to make any more contributions to the account.

If funds are distributed to you, it is your responsibility to roll the amount over into a new account, such as a traditional IRA, within 60 days - or face a penalty from the IRS if you are under 59 1/2 years old.¹

It’s important to note that in the event that the plan is terminated following a merger, you will not lose vesting benefits. The plan must be 100 percent fully vested, regardless of the original vesting schedule laid out by the employer.²

#2: Your Plan May Continue Uninterrupted

In some cases, the buyer may decide to keep your 401(k) plan as-is. If this is the case, it’s likely you’ll be able to continue contributing to your 401(k) as always with no changes needed on your end.

#3: Your Plan May Be Merged

Your new employer may decide to merge your original company’s 401(k) plan with theirs - creating a hybrid of sorts. If this is the case, it’s likely that the human resources department will not begin work on developing a new 401(k) plan until after the final sale is completed. This could mean waiting weeks or months for a new plan to be put in place. Once a new plan is chosen, or while the HR department is working on developing a new one, you may be locked out of your account as things are transitioned over.

Once a plan has been chosen by your employer, you may be given a new set of investment options to choose from, or your funds may be automatically placed into a similar setup as they were before.

A business merger can be stressful for employees - no one knows if their job is safe or how their job may change. But understanding how your 401(k) may be affected can help you adequately prepare for what may be coming down the line. If you’re still unsure about how this may affect your retirement savings, talk to your financial advisor. They can help you stay focused on any potential next steps to take when it comes to protecting your retirement.

Beacon Hill Private Wealth is an independent, fee-only, fiduciary investment advisor providing evidence-based wealth planning solutions that simplify our clients' financial lives. Founder Tom Geoghegan, CFP®, MBA is also a member of the National Association of Personal Financial Advisors (NAPFA).

The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.