Why is it important for corporate attorneys to understand employee benefit law?
Doll Lank explained that corporate attorneys are often the first point of legal contact for employers who sponsor employee benefit plans. These plans can include retirement savings, health and welfare benefits such as medical insurance, and other employee perks. Because clients frequently interact with corporate counsel more than with benefits attorneys, it is essential that corporate attorneys understand enough about benefit law to spot potential issues.
Kathleen Bass added that corporate attorneys typically handle mergers and acquisitions, which makes them the natural go-to advisors for employers. Since they are already in the middle of major corporate transactions, they often serve as the bridge between employers and the specialized legal requirements of benefit law.
What does employee benefit law cover?
According to Doll Lank, employee benefits law encompasses retirement savings plans that qualify for tax benefits under Section 401(a) of the Internal Revenue Code, such as 401(k) plans, profit-sharing plans, and traditional pensions. It also applies to health and welfare benefits sponsored by employers, including medical insurance, disability insurance, and other employee benefit programs.
Lank emphasized that many of these benefits fall under the federal law known as ERISA—the Employee Retirement Income Security Act of 1974—which governs private employer benefit plans. ERISA establishes qualification rules and compliance obligations that must be followed for employers to receive tax benefits while ensuring employees are treated fairly.
What benefit issues commonly arise in M&A transactions?
Doll Lank highlighted that one of the most common problems in mergers and acquisitions is incomplete ERISA compliance for health and welfare benefits. Often, employers rely solely on insurance contracts without the required documentation, such as a wrap document. This lack of preparation creates significant compliance risks when deals are being finalized.
She explained that the biggest overall issue is rushing due diligence. When benefits are left to the last minute, there is often a scramble to resolve problems, which can lead to inaccuracies in representations and warranties. By addressing these issues early, attorneys can limit exposure for their clients and prevent costly mistakes.
Kathleen Bass noted that retirement plans pose an even greater challenge in M&A transactions. If a buyer inherits a problematic retirement plan without proper review, they may be forced to assume liability for expensive corrections. Bass shared that in some cases, buyers have required sellers to terminate their plans before closing to avoid inheriting compliance problems.
What are the red flags that suggest a benefit plan needs closer review?
Doll Lank explained that attorneys should start by identifying all of the employee benefits offered by the company. Simply asking the seller is often insufficient, as employers may not fully understand which programs fall under employee benefits law. Reviewing employee handbooks, benefit documents, and compliance filings is key.
One immediate red flag is the absence of required filings, such as Form 5500 for ERISA-covered plans. Failure to file indicates a compliance issue that must be addressed before closing. By systematically reviewing compliance checklists, attorneys can quickly determine whether additional work is needed to bring plans into alignment with legal standards.
What is the difference between corporate attorneys and employee benefits attorneys during a deal?
Lank explained that corporate attorneys manage the overall transaction, including property, financials, and intellectual property. Employee benefits attorneys, however, focus exclusively on retirement and welfare plans, compliance documents, and reporting requirements. While their role is narrower, their work is critical to protecting both buyers and sellers from inheriting hidden liabilities.
Because corporate attorneys often have an extensive list of responsibilities, benefits issues can easily be overlooked. Yet, employee benefit plan problems can significantly affect the valuation and outcome of a deal if not properly addressed.
Have there been real examples where catching benefit problems early changed the outcome of a deal?
Kathleen Bass shared an example where due diligence uncovered serious retirement plan issues on the seller’s side. The problems required costly corrections, which led the buyer to insist that the plan be terminated before closing. This proactive discovery allowed the buyer to avoid inheriting liability, while the seller was able to address the plan separately.
Doll Lank added that it is common for compliance failures to surface during due diligence. The key difference comes down to timing: catching issues early allows for correction, while discovering them too late forces rushed resolutions that could delay or derail the deal.
How can corporate attorneys incorporate benefit plan reviews into their work?
Doll Lank recommended that corporate attorneys maintain an ongoing awareness of their clients’ employee benefits, even outside of major transactions. A best practice for employers is to form a plan committee to oversee investment and administration decisions, ensuring compliance and reducing liability.
For attorneys who want to learn more, Lank suggested reviewing resources such as legal blogs and newsletters that explain employee benefits in plain language. She emphasized that simply asking clients about their benefit plans during annual check-ins or preliminary deal discussions can uncover potential risks early.
Kathleen Bass agreed and advised corporate attorneys to bring in benefits counsel at the start of any merger or acquisition. Those who make this a standard practice quickly see the value in early collaboration. By addressing benefits at the beginning rather than at the end—or worse, after closing—clients are better protected from expensive cleanup work and unexpected liabilities.
Final Takeaway
Both Doll Lank and Kathleen Bass emphasized that employee benefits law plays a critical role in corporate transactions. Corporate attorneys who proactively address benefit plan issues and collaborate with employee benefits counsel can help clients avoid hidden liabilities, protect deal value, and ensure smoother transitions during mergers and acquisitions.