As a plan provider, one of the more frustrating parts of asset sale transactions is watching a perfectly salvageable retirement plan get marched toward termination because the M&A lawyers want zero daylight between the buyer and anything that smells like seller liability.
I get it. I spent three years in law firms. I know how these conversations go. The acquisition attorneys are paid to reduce risk, eliminate ambiguity, and make sure their client doesn’t accidentally inherit a landmine hidden in the seller’s filing cabinet. Mention the possibility of assuming a retirement plan, and you can practically hear chairs moving backward.
But from a retirement plan perspective, automatic termination is not always the smartest answer.
In an asset sale, the reflexive answer is often simple: terminate the seller’s plan, force distributions or rollovers, and start fresh in the buyer’s plan. Clean break. No historical baggage. No inherited compliance failures. No worries about undiscovered operational defects. It sounds elegant.
Except retirement plans are administered in the real world, not on legal flowcharts.
Terminations create disruption. Participants get confused. Rollovers get delayed. Missing participants become everyone’s favorite problem. Outstanding loans suddenly require careful handling. Blackout notices, distribution elections, communication failures, payroll coordination, and recordkeeper logistics all become part of the circus. If the workforce is continuing seamlessly under the buyer, terminating the plan can feel like burning the house down because you didn’t want to repaint the kitchen.
There are situations where assumption makes perfect sense. If due diligence shows the plan is reasonably clean, operational history is understood, and the buyer is effectively continuing the workforce, preserving the plan can avoid unnecessary chaos. Participant accounts remain intact. Loans continue without interruption. The transition is cleaner for employees and often less operationally painful.
The challenge is getting M&A counsel to entertain the conversation.
The words “assume the plan” can trigger the same reaction as “let’s adopt a stray raccoon.” The fear is inherited liability, and to be fair, that fear is not irrational. A defective plan can come with expensive surprises.
But zero-risk lawyering sometimes creates avoidable business headaches.
As plan providers, our job is at least to present the option. Explain the operational benefits. Discuss diligence safeguards. Outline risk mitigation. Maybe the answer is still no. Fine.
But too often, the conversation never happens because the legal reflex is immediate termination.
Sometimes that’s the right answer.
Sometimes it’s just the easiest answer for the lawyers.
