Pension, Savings and Welfare Plans Best Practices to Avoid Liability - PowerPoint PPT Presentation

Presenting a live 90-minute webinar with interactive Q&A Benefit Plans in M&A: Transitioning Pension, Savings and Welfare Plans Best Practices to Avoid Liability for Underfunding, Plan Defects and Unintended Benefits TUESDAY, MAY 16, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Michael R. Bergmann, Counsel, Skadden Arps Slate Meagher & Flom , Washington, D.C. Ian L. Levin, Partner, Schulte Roth & Zabel , New York, N.Y . Alessandra K. Murata, Partner, Goodwin Procter , Menlo Park, Calif. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .

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ERISA BENEFIT PLANS IN M&A: TRANSITIONING PENSION, RETIREE WELFARE AND DEFINED CONTRIBUTION PLANS Presented by Michael R. Bergmann Ian L. Levin Alessandra K. Murata Skadden, Arps, Slate, Schulte Roth & Goodwin Procter LLP, Meagher & Flom LLP, Zabel LLP, Menlo Park, CA Washington, DC New York

AGENDA I. Pension Plan Obligations II. Retiree Welfare Benefit Obligations III. Defined Contribution Plans IV. Non-Qualified Deferred Compensation Plans V. International Plans 6

I. Defined Benefit Pension Plans 7

I. PENSION PLANS A. Treatment of Pension Plans B. Single Employer Plan Underfunding Liability C. Multiemployer Plan Withdrawal Liability D. Controlled Group Liability E. Minimizing Potential Liability in M&A Deal 8

A. Treatment of DB Pension Plans 9

I. DB PENSION PLANS A. Treatment in Transaction Stock Sale & Merger  Any single employer DB pension plan maintained by the target entity will continue to be maintained by that entity, unless the parties provide otherwise  If a single employer DB pension plan is maintained at the target’s parent or other affiliate, parties may agree to provide for the transfer of plan sponsorship or a portion of the plan  If target entity is a party to a CBA that requires target to contribute to a multiemployer plan, post-closing target entity will continue to be a party to CBA and be obligated to contribute to multiemployer plan 10

I. DB PENSION PLANS A. Treatment in Transaction Asset Sales  Absent agreement to provide otherwise, plans will remain with the Seller and will not be transferred to Buyer  Employees who are hired by Buyer will be terminating employment with Seller (but if plan or spun-off plan is assumed by Buyer, no termination may occur)  If employees are covered by a CBA, Buyer will need to assume CBA or enter into a new CBA covering employees, in each case which might include contributions to a multiemployer plan 11

B. Single Employer Plans 12

I. DB PENSION PLANS B. Single Employer Plans  Treatment in Transaction - Alternatives  Plan is automatically assumed/continued  Plan is contractually assumed by Buyer  Portion of assets and liabilities of Plan are “spun - off” as a new plan and contractually assumed  Portion of assets and liabilities of Plan are transferred by trust-to-trust transfer to Buyer’s plan (e.g., a spin -off and merger) 13

I. DB PENSION PLANS B. Single Employer Plans Trust-to-trust Transfer/Spin-off  If Buyer acquires only a division/subsidiary of Seller, Buyer generally will not assume Seller-level plans  Instead, Buyer may agree to take a trust-to-trust transfer from such plan-typically called a “spin - off”  Assets must be transferred to provide each participant with a benefit that is at least equal to the benefit participant would have been entitled to receive pre-transaction  Transaction agreement should address:  Timing  Affected Participants  Actuarial assumptions  Dispute mechanism (“battle of the actuaries”) 14

I. DB Pension Plans B. Single Employer Plans Treatment of Plan by Buyer  Merge plan into Buyer’s existing plan  Freeze plan  Terminate plan 15

I. DB Pension Plans B. Single Employer Plans  Underfunding liability can be a significant aspect of any transaction  Quantification of liability depends on assumptions which vary depending on purpose  Financial accounting  Termination liability  PBGC variable premium calculation  PPA funding target/minimum contribution requirements 16

I. DB Pension Plans B. Single Employer Plans  Primary issues needed to be considered by a Buyer  Unfunded Termination Liabilities – Adversely impacts Buyer’s balance sheet  Required Minimum Contributions – Effect on cash flow  IRC § 436 – Will benefit restrictions be triggered? 17

I. PENSION PLANS B. Single Employer Plans  Unfunded Liabilities  Unpaid Contributions  PBGC Premiums  Liens 18

I. PENSION PLANS B. Single Employer Plans  PBGC Early Warning Program  PBGC monitors companies with underfunded pension plans and looks for transactions that pose an increased risk of long-run loss to the PBGC  Focus is on transactions that may substantially undermine sponsor’s ability to fund plan or PBGC’s ability to collect termination liability if plan is terminated  PBGC might request additional information regarding transaction and then go away, or may threaten involuntary termination of plan prior to the transaction if there are major issues  DB Plan may be terminated through a “distress” termination initiated by the plan sponsor or through an “involuntary” termination initiated by the PGBC  Threat of involuntary termination provides PBGC leverage to negotiate additional protections for plan, such as additional contributions, security for future contributions or a guarantee from a financially sound company that is leaving the controlled group 19

I. DB Pension Plans B. Single Employer Plans  Evasive Transactions: 5 -Year Lookback Rule  If the principal purpose of entering into a transaction is to evade termination liability and the pension plan terminates within 5 years after transaction, the transaction is ignored for purposes of assessing termination liability against prior contributing sponsor  Benefit increases that are effective after the transaction date are not taken into account  If prior sponsor ceases to exist due to a reorganization, merger or consolidation, the successor entity (and the members of its controlled group) will be responsible for the termination liability 20

C. Multiemployer Plans 21

I. DB Pension Plans C. Multiemployer Plans  Withdrawal liability arises when an employer participates in, and then completely or partially withdraws from, an underfunded multiemployer pension plan  An employer that withdraws from a multiemployer plan is liable for the employer’s share of the plan’s unfunded vested benefits  Amount of withdrawal liability is determined under statutory formula and calculated as of the last day of the plan year before the plan year in which the employer withdraws  Upon withdrawal, the plan determines the amount of withdrawal liability, notifies the employer of the amount and collects it from the employer  Controlled group liability 22

I. DB Pension Plans C. Multiemployer Plans  Complete Withdrawal  Employer permanently ceases to have an obligation to contribute to the multiemployer plan  Employer permanently ceases all covered operations under the plan  Partial Withdrawal  Decline of 70% or more in the employer’s “contribution base units” over 3 plan years  Partial cessation of the employer’s obligation to contribute 23