This is the fourth and final post in a series aimed at preparing your organization’s HR, benefits and executive compensation functions for a potential sale or similar corporate transaction. This post addresses considerations for your organization’s health and wellness plans in a potential sale.
As a note, the phrase “health and wellness plans” is an umbrella term that covers medical and prescription drug, dental, and vision benefits, as well as accident, disability, and death benefits; retiree medical plans; and vacation benefits, but also programs such as day care, scholarships, legal services, transportation, and more.
Preparing for a sale? Reach up to Part 1who gave general instructions and suggestions on how to get organized. Part 2 address change of control documents that may be affected by a potential sale, as well as handling outstanding equity compensation. Part 3 address the impact of a sale on your organization’s pension plans.
Health and wellness plan considerations
A potential buyer will want to know if your health and wellness plans are operating in compliance with applicable laws to assess the legal and financial risks they may face.
We recommend that for your health and wellness plans, you begin compiling final copies of the following:
- Insurance contracts, policies and certificates of coverage for all plans; if the plan is self-insured, copies of any administrative services agreements, funding agreements, and stop-loss insurance
- Plan documents, including a “wrapper” plan document (if any)
- Latest Summary Plan Description (SPD)
- Any summary of material modifications since the last SPD update
- Section 125 cafe plan document
- Forms 5500 and evidence of timely filing
- Employee handbooks
- Copy (or, if not available, a written description) of additional benefits and conditions
- Any non-routine correspondence with a government entity regarding health and welfare plans
Also, for employers with 50 or more full-time employees, compliance with the Affordable Care Act (ACA) is an important issue.
If your plans are subject to the ACA, you must compile final copies of the following:
- Summary of benefits and coverage
- Annual non-discrimination testing
- Forms 1094-C and 1095-C
Finally, there are some common compliance issues that we run into on a regular basis that you should be aware of to avoid any eleventh hour problems. If any of the issues below apply to your organization, it is important to be proactive and speak with your service provider or legal counsel.
- Do you have a Section 125 cafeteria plan document? (We regularly work on deals where targets don’t have the plan document, it’s unsigned, or it doesn’t cover all eligible benefits.)
- If you are filing a single Form 5500 for your health and welfare benefits, do you have a wrap plan document?
- Do you have enough plan participants to be required to file Form 5500 and, if so, are enrollments made on time?
- If your welfare plan is funded by a voluntary employee benefit association (VEBA) and has more than 100 participants, has the plan undergone an annual audit and has the audit report been filed with the plan’s Form 5500?
- If you are subject to the ACA, have you performed plan testing to confirm that the plan meets the applicable ACA requirements?
- Have you confirmed plan eligibility for all plan participants and participating employers (if any)?
- Do you participate in a Multi-Employer Welfare Agreement (MEWA)?
- Are the owners of your organization filing K-1 schedules but also participating in your health and welfare benefits on a taxable basis?
- Are your requirements documented as a written policy and does the policy require documentation of costs and expenses?
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