We are aware of several business studies that conclude that a high percentage, between 70-90%, of corporate acquisitions fail to meet their business objectives. When looking at why the time, effort, and expense invested in a corporate acquisition turn out not to achieve the business synergies and value creation that were expected, it is apparent that workforce integration and commitment after the transaction closes often is a contributing factor to why these acquisitions fail.

Employee benefits issues in corporate transactions often focus on liability exposures, such as pension plan funding obligations, regulatory compliance penalties (we have seen some very large fines assessed for failures to comply with ACA requirements and pension plan rules), and tax exposures for issues like worker classification and employment taxes. But it is equally important to successful worker integration that there was proper benchmarking of benefits for the new employees, consideration of benefit plan continuity and transition, and post-closing HR operations. There are many examples of surprise benefits issues that can affect workforce satisfaction, including loans accelerating when a 401(k) plan is terminated and mid-year medical provider changes and deductible restarts when employees are enrolled in a new health plan, and we recommend that employers should not underestimate the complexity of migrating an employee group to a new payroll system if that has to be done. There are also less visible areas where HR data and benefits compliance can complicate an acquisition after closing. For example, if an acquirer reviews the target company former employees who are on or eligible to elect COBRA at closing and determines that some are merger and acquisition qualified beneficiaries under COBRA who should be offered COBRA through an acquirer plan, it is important that the target data is available to meet this COBRA obligation, including the benefit plan participation, contact information for the former target employee and dependents, and termination dates for the former employee, as well as any secondary eligibility events.   

In many cases, these workforce integration issues can be addressed relatively easily before a transaction closes and can save businesses considerable post-closing headaches and expenses.