Employee Benefits Can Spring Costly Surprises in M&A, Longfellow Benefits' Haraden Tells Boston Bar

BOSTON, MA--(Marketwire - December 19, 2007) - You've scrutinized the deal until your eyes hurt, but if you haven't carefully examined employee benefits, you haven't done your job in M&A due diligence, Patrick J. Haraden, director of employee benefit services at Longfellow Benefits, told the Boston Bar Association today.

"If you don't review benefits and take the right steps, it could cost your client plenty and cause employee dissatisfaction," said Haraden, whose Boston-based firm advises New England employers on benefit plans.

If your organization has employees in Massachusetts, or will gain them via the acquisition, the new entity must comply with the state's new healthcare law, he pointed out.

"Employee benefit costs may continue after acquisition," he said. "These are significant liabilities that may not be on balance sheet or readily known or available. They can impact the fair purchase price or terms of the deal."

COBRA can be a poison pill. The seller is obligated to make health insurance available under COBRA if a group health plan is maintained after the sale. The buyer must make COBRA continuation coverage available if the selling group ceases to provide any group health plan or the buying group is considered a successor employer. All current COBRA participants, COBRA eligibles in the notification period and all employees on leave of absence should be divulged.

"M&A Agreements should allow access to each other's COBRA records for at least 36 months after close," Haraden said.

Mass.-Style Provisions Spread

Under the mandatory healthcare law, most Massachusetts employers must have a Section 125 Plan and must not discriminate in their fully insured medical benefit offerings, Haraden noted.

"It's still early and difficult to evaluate impact for M&A due diligence," he said.

Connecticut, Rhode Island, and Missouri also require Section 125 plans that give employees the opportunity to pay for benefits on a pretax basis. California is close to adopting other aspects of the Massachusetts model.

"Involve your employee benefits broker or consultant early. They most often they have the required documents and expertise, and they have a vested interest in a good outcome," he said.

Whenever possible, get data directly from vendors like insurance companies and 401(k) managers, Haraden advised.

"Trust, but verify," he concluded.

Serving organizations in New England and nationally, Longfellow Benefits provides employee benefits, retirement plans and executive benefits. Its staff includes experts carrying top professional designations: Registered Employee Benefit Consultant (REBC), Chartered Life Underwriter (CLU), Registered Health Underwriter (RHU), Licensed Insurance Advisor (LIA), Master of Business Administration, Taxation (MBA), Certified Employee Benefits Specialist (CEBS), Certified Financial Planner (CFP®), Chartered Financial Consultant (ChFC) and Accredited Investment Fiduciary (AIF®).

For more information, visit www.longfellowbenefits.com or call 617-351-6000.

Contact Information: Contact: Henry Stimpson Stimpson Communications 508-647-0705 HStimpson@StimpsonCommunications.com