Mergers and Acquisitions: Identifying and Addressing Pension and Benefit Legal Risks 

April, 2005 - Kenneth E. Burns

This paper is about the role of the pension and benefits lawyer in the context of a merger or acquisition. The paper profiles several recent high profile corporate transactions where pension issues played unexpectedly significant roles. These provide potent examples of how the pension and benefits lawyer should be consulted early on in the transaction process. The paper focuses on how to identify and address legal risks through the due diligence process, and through the careful drafting of representations, warranties and the detailed pension or benefit transfer terms in the purchase and sale agreement. TABLE OF CONTENTS 1.0 Introduction 2.0 Recent High-Profile Pension and Benefit Stories 2.1 Air Canada 2.2 Stelco 2.3 Transamerica 3.0 Identifying Legal Risks 3.1 Employment Transfer Risks 3.2 Pension and Employee Benefit Plan Risks - Generally 3.3 Pension and Employee Benefit Risks – Specific Risks 4.0 Addressing Legal Risks 4.1 Due Diligence 4.2 Representations and Warranties 4.3 Pension and Benefit Transfer Terms 4.4 Post-Transaction Governance Appendix A – Due Diligence Procedure Appendix B – Sample “Benefit Plan” Definition Appendix C – Sample Pension and Benefit Representations and Warranties Appendix D – British Columbia Pension Benefits Standards Act – M & A Provisions Appendix E – Ontario Pension Benefits Act – M & A Provisions Legal Risks and Strategies 1.0 Introduction Why are pension and benefit plans important factors to consider in mergers and acquisitions? For one, there are big dollars involved. Disposing of pension or benefit plans and their associated liabilities in the sale of a business, or acquiring new pension and benefit plans and associated liabilities in an acquisition or merger can have an immense impact on the corporate bottom line. Changes, positive or negative, to the pension and benefit plan offerings to affected employees in a merger and acquisition can have an immense impact on their morale and productivity. Companies need to know what they are getting into. Companies also need to recognize that mergers and acquisitions constitute a great opportunity to update their pension and benefit offerings to their own employees. When two companies come together in a merger, it sometimes takes years after the fact before the pension and benefit offerings are harmonized between the different groups of employees. Why aren't these issues considered beforehand? Would doing so make the deal more worthwhile? or at least less risky? This topic addresses some recent high profile pension and benefit stories involving mergers and acquisitions, then sets out ways that organizations can identify legal risks associated with pension and benefit plans and then how to address them with action before, during, and after the transaction. As befits a broad topic being discussed in a relatively short period of time, this discussion will be quite high level and general. For this reason, we will not go extensively into the details of how the pension and benefit issues differ between stock and asset deals, nor into the details of how to handle the transfer or replacement of each of the different kinds of pension plans and benefit plans. This is not to discount those details, but before such issues can be properly addressed, organizations and the people leading them have to be able to assess the issues as a whole, and their broader effects on the organization. To see the full text of this paper, please go to Lawson Lundell LLP's website.


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