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:
|Topic||Preliminary Spin-off Considerations|
Determine how to treat employee FSA accounts. The two main alternatives are:
The latter may be less burdensome considering new IRS rollover rule.
|Incentive Bonus||OldCo: 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?
|Retirement||All 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).
|Severance||Pre-Spin: evaluate whether existing plans trigger benefit claims.|
Post-Spin: establish new plan(s), and policies.
|Stock Awards||Pre-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 Benefits||All: 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 - Generally||In most spin-offs, a transition services agreement is the best vehicle for identifying employment and benefit-related issues, cost-sharing, and expectations.|
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