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What Happens to 401(k) Plans When Companies Merge?
If your employer is getting bought out by or merging with another company, you’re in for some serious changes. Hopefully, most of your questions about leadership, benefits and work responsibilities will be answered very soon—but what about your 401(k)? Since this company benefit isn’t a top priority during this transition, you may not get answers on what will happen to your retirement savings for a while.
Generally, when companies merge, each company’s 401(k) plans have three options: the new company will continue, terminate or merge the plan.
1. Continue Both Plans
When the companies merge, the new company may decide that it’s in everyone’s best interests to simply maintain both plans. That way, no one has to give up their current 401(k) plan. The new company simply becomes the plan’s new sponsor, and you’ll experience no gaps in coverage and you’ll still be able to contribute to your plan as usual.
This option can often be great for company morale. Acquisitions and mergers are difficult times for employees, and keeping at least some benefits the same may help stabilize the company’s workforce. If you’re already happy with your 401(k), hopefully your new employers will keep it running for you.
2. Terminate One of the Plans
Once the merge or acquisition is complete, the leadership of the new company may decide that one of the 401(k) plans has to go. If your plan gets terminated, you’ll still get every penny that you already put in to the plan—you just won’t be able to keep contributing to it.
Some companies choose to fully distribute the assets of the 401(k) plan to the participants. In other words, you’ll get all the money you put into the plan right now, and you can either keep it or put it in the company’s new 401(k). However, this situation isn’t very common.
Instead, most companies will keep the 401(k) plan as it is. Your money will still be there, invested and growing until you need it when you retire. However, you won’t be able to contribute any more to that particular 401(k). You can either let it stay where it is, or you can roll the money over into an IRA or a new 401(k) plan.
If your employer chooses to terminate your 401(k), they should notify you before any changes are made so you have time to prepare your next financial steps.
3. Merge the Plans
Some companies decide that they want the best of both worlds, so they go through the effort of combining the 401(k) plans of both merged companies. The leadership will take elements of each plan to form one new 401(k) for everybody to use.
If your company chooses this option, there’s no telling what the new plan will look like, though the IRS does regulate plan mergers so they don’t eliminate or reduce protected benefits. In other words, if you’ll be getting a new 401(k) plan, you can at least rest assured that it shouldn’t be much worse, if at all worse, than your current one.
Merging 401(k) plans takes time. If your company goes through the process, expect it to take months for the new plan’s details to be decided. Afterwards, your current 401(k) will be moved over to this new 401(k).
No matter what your new employers choose, they should keep you informed. While you wait for more information about what happens next during this turbulent time, you can learn more about 401(k) options at Uniglobal’s FAQ page. We’re an excellent designer and provider of employer 401(k) plans, and we work with companies of all shapes and sizes.