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HR & Benefits Setup for Merger/Acquisition

HR & Benefits Setup for Merger/Acquisition

| October 11, 2021

NewCo, the sales and marketing subsidiary of a US corporation, was acquired by a foreign entity; the transaction resulted in the loss of domestic oversight of all US workforce management and administration functions. RMR was referred by the acquisition’s legal counsel to assist the new domestic stand-alone entity in sourcing a solution to replace lost competencies and services.

RMR was engaged by the acquiring company’s UK based Human Resources (HR) team to provide a comprehensive solution for employee benefits and retirement, onboarding, payroll, time & attendance, PTO tracking, employee administration and other compliance and governance requirements for an expected twelve (12) new employees; the purchase was an asset sale and required the termination and rehire of all employees by NewCo.

Terms of the acquisition required US NewCo to continue to maintain a substantially identical, high quality, comprehensive, Fortune 1000 style benefits and retirement package that employees enjoyed while working for the prior owner. Creating a large employer benefit program for NewCo’s U.S. entity in the small market was a challenge.

Finding the Appropriate Platform

RMR was able to identify favorable demographics and other fact patterns that suggested engaging a Professional Employer Organization (PEO) platform to meet company needs would generate the best means to achieve the state goal while being cost-effective and easily administered.

RMR also worked to evaluate the prior owners’ retirement plan and formulated a successor plan, adopted by US NewCo, ensuring that employees transitioning with the company to the new owners would not lose their existing retirement benefits.

Important Fact-Finding 

An unexpected outcome of RMR’s assessment of the Acquisition Agreement, US NewCo’s business model, as well as their current financial needs, resulted in these common challenges:

  • US NewCo appeared to qualify as part of a Controlled or Affiliated Service group alongside their foreign owners’ other US-domiciled owned and controlled entities. As defined under §414 of the IRS code. Control/Affiliated Service Group status impacts healthcare and retirement plans design, testing, recordkeeping and reporting requirements. An extensive evaluation of how entities are related determines what is necessary to ensure proper compliance and the path’s forward.
  • If NewCo was unable or unwilling to match the benefits that new employees were receiving from the prior owner, each employees’ employment contract would need to be renegotiated and cash-in-lieu of benefits would need to be proffered to achieve parity.  
  • The prior owner maintained a comprehensive, integrated, paperless HCM infrastructure and wanted NewCo to enjoy a similarly integrated system.
  • NewCo needed a means to not only provide Workman’s Comp, SUI, ELPI, Surety, Fiduciary Bonding and other statutory benefits but a method to easily and efficiently record-keep and report for premium and audit.

Selecting a PEO to Deliver Payroll and Benefits Solutions

NewCo’s specific requirements and lack of domestic HR support suggested that a third-party administrator would be necessary to operate and maintain onboarding, payroll, time and attendance, PTO tracking, performance management, benefits enrollment and administration and operation of pre-tax benefits such as 125 Health and Dependent Care Flexible Spending/Cafeteria Plan Accounts (FSA, DCAP), Health Savings Account (HSA), QTP benefits and COBRA administration.

NewCo concluded that a PEO was the best fit to accomplish their goals, including support of the compliance and reporting requirements necessary under §414 for their medical plan, upstream to the parent for consolidated reporting of all US entities owned and controlled.

With the PEO, NewCo could retain control of its employees and enjoy the services of a high-touch HRBP service team while benefiting from access to “true group” products that keep insurance and benefit costs affordable without compromising the value promised to employees, all wrapped up in a single environment for recordkeeping, administration and reporting.

After a team discussion, RMR was engaged to manage the PEO RFP. After selecting suitable candidates, preparing a comprehensive side-by-side financial analysis and a “beauty contest” between vendor representatives and their respective platforms and systems, the customer made it’s selection based on the presentations and analysis. RMR then assisted in the PEO installation, including employee meetings and presentations, to ensure the implementation was seamless, employees were hand-held and that the final product met expectations.

Creating a Successful Retirement Plan

Because §414 was a consideration, we determined that adopting a Safe Harbor 401(k) with discretionary Profit-sharing features would best align the US NewCo subsidiary with their UK owners’ other US entity retirement plans for purposes of cross-testing, reporting and compliance. All employees became fully vested in the benefits of their prior owners 401(k) plan at termination, ensuring that employees did not forfeit any balances upon termination.


RMR was brought in to find a solution for NewCo to establish a comprehensive infrastructure for the company’s new employees. The main requirement was that the new plans were in line with plans already in place for the parent company’s own employees and that the experience would not change and hopefully improve.

How RMR approached the task and arrived at a solution:

  • Assessed all processes and plans operated and offered by the prior owner to employees moving to NewCo
  • Researched and evaluated options and made a meaningful recommendation and approach to transition.
  • Executed a plan to find the best-fit PEO for NewCo and created a blueprint for transfer.
  • Addressed the Control Group concerns and solved related governance issues by suggesting adoption of a Safe Harbor 401(k) approach.
  • Educated eligible staff on their new benefit options and processes and worked with fully vested employees before the 401(k) plan transition to ensure they retained all existing benefits.
  • Implemented the new retirement plan and outsourced operations and administrative tasks to the new PEO on a cost-effective basis.

Contact RMR Corporate Solutions to see how we can optimize your workforce programs, increase employee satisfaction and generate a return on investment in managing your human capital.