SEPTEMBER 2006 Pension Plan tip of the month...

Buyer or Seller Be Aware

When a firm is purchasing or being purchased by another, retirement plans are often not the first thing under consideration. This can be a serious mistake because changes in ownership can have an effect on your qualified plan far beyond the simple merging of your company’s payrolls and operations.

When designing or administering a retirement plan we ask to be updated regarding any changes in firm ownership so that we can help you address some potentially serious issues. Just a few items that could affect your plan and the operation of your business are listed below;

ADP Testing-New ownership can bring with it a new group of highly compensated employees, possibly affecting the need for year end refunds.

410b Testing-Do both companies already have a plan? This answer could affect how certain “coverage tests” are performed. A plan that fails to cover a certain percentage of their workforce could be required to fund additional employer contributions.

Plan sponsor-depending on the type of purchase, the plan’s previous sponsor may NO LONGER be permitted to contribute into the plan.

Operational Failures-Operating a plan incorrectly after a purchase could lead to plan disqualification as well as penalties and fines. A firm that acquires a qualified plan with operational flaws could take on the liability related to that plan.

Mergers and acquisitions of firms and qualified plans present too many issues to be covered in this format, these transactions involve many issues that take time to discuss and address. Often the assistance of an ERISA or other attorney will be required. The sooner Paragon is made aware of such a transaction, the more likely we will be able to help avoid the pitfalls and problems that can arise.

To discuss specifics regarding a transaction your firm will be involved in, please call your Paragon Account Executive.