Let's take a look at the path to fully terminate a pension plan in a M&A transaction and the timing considerations for going down this road. (Photo: Shutterstock)
M&A transactions that involve defined benefit pension plans can be tricky. First, due diligence and pricing the risk associated with the plan can be difficult. Second, managing the plan after the transaction can be complicated.
For many CFOs, the optimal answer would be to eliminate the plan and not deal with a long-term, volatile liability on the books, distracting and often complicated plan administration and a potential cash drain for the organization.
This article looks at the path to fully terminate a pension plan in a M&A transaction and the timing considerations for going down this road.
Background
Over the past 30 years, many corporations have moved away from the traditional defined benefit pension plan in favor of 401(k)-style retirement plans. But just because a company that is being acquired is no longer offering pension benefits doesn't mean that they don't still own pension plan liabilities in the form of benefits that they are paying to current, or will pay to future, retirees.
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