Corporate Spin-offs: From Equity Awards to Benefit Plans 

Corporate spin-offs present a range of equity compensation, 409A, and employee benefits issues that are often under-appreciated, and belatedly recognized. For advance planning, here is a checklist from which to get started:

TopicPreliminary Spin-off Considerations
Cafeteria Plan

Determine how to treat employee FSA accounts.  The two main alternatives are: 
(1) coverage continues under OldCo’s FSA plan for the rest of the year, or 
(2) coverage is transferred to a new SpinCo plan.  

The latter may be less burdensome considering new IRS rollover rule.

Incentive BonusOldCo: determine what happens to bonus rights established for employees (both for continuing OldCo employees and for those joining SpinCo).
SpinCo: establish new plan(s) and awards?
RetirementAll Plans: address plan separation through its own spin-off, with action needed by plan sponsor and spun-off company (e.g. asset transfer, protected benefits, agreement with TPA, and appointment of new trustee and administrator).
401(k) Plans: special attention to mapping of investments, and terms of new plan (e.g. mirror or different prototype).
SeverancePre-Spin: evaluate whether existing plans trigger benefit claims.
Post-Spin: establish new plan(s), and policies.
Stock AwardsPre-Spin: determine what happens to equity awards held by employees joining SpinCo; consider 409A issues.
Post-Spin: establish new plan(s) and awards; address desire for SpinCo to make awards for its shares, or OldCo.

Welfare BenefitsAll: work with insurance carrier/service providers to establish new or mirror plans  for SpinCo.  New underwriting may be needed for OldCo or SpinCo due to changed pool of covered employees.

Health Only: Changes in # of covered employees may make insured plan better for OldCo or SpinCo. Self-insured plans may require transition re claims run-out, and require HIPAA and ACA compliance. Spin-off is unlikely to trigger COBRA, unless assets only.
Employment Matters - GenerallyIn most spin-offs, a transition services agreement is the best vehicle for identifying employment and benefit-related issues, cost-sharing, and expectations.