M&A - Spinoffs

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Corporate Spin-offs: From Equity Awards to Benefit Plans

For comprehensive information see the "Spin-off Playbook: When Corporate Transactions Impact Benefit Plans" (Poerio and Towers Watson, NYU Law 2013.Jan.12)

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
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 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.