6 Important Issues, Corporate Spin Off: Part 4 - Retirement Plan Changes

September 28, 2017

Welcome to the fourth part of the Spurstone Executive Wealth Solutions 6 part series discussing executive compensation negotiations and benefit considerations during a corporate spin off. Through this series we will be covering topics to help you get a solid understanding of how your risks could increase or decrease, where you may become more "handcuffed" and major issues to understand and evaluate.

Let us know what you think,

Thanks in advance.

Part 4 - Retirement Plan Changes

As an executive and employee of a publicly traded company, your retirement plan (401k) is a staple of your personal savings program. These platforms provide an opportunity to defer income, invest your savings and potentially receive a company contribution matching a portion of your annual deferral. In the event of a spin off, there are important issues you should be aware of before you take action on options that may become available to you.

As a result of the spin off, the new spinco will have a 401k plan that is completely independent of the parent company plan. This may have been the case to begin with, but if not, your new plan may be held by the same investment provider or a completely new platform. Your investment choices may stay the same or be revamped entirely. Regardless of what happens, you will have decisions to make that can have lasting implications and repercussions.

The first issue to understand is whether your existing 401k account balance will be transitioned to the 401k under the new spinco or if it will remain with your old employer. If in fact your balance will be force transitioned to the new 401k plan, now is a perfect time to get familiar with the new investment options and ensure your allocation for your existing balance and new deposits are in line with your overall investment strategy and financial plans. While establishing this new account (and reviewing the old), this is also an opportunity to ensure your beneficiaries on file are up to date and correct.

If your existing 401k balance will not be automatically rolled into the new plan, you will have a few options of what to do with the old account. If your balance is over a stated minimum (typically $5,000), you will be permitted to keep your balance in that plan, rollover your funds into the new 401k plan, rollover to an IRA or cash the funds out entirely. Each of these options has many implications and should be discussed in detail with your private financial advisor team.

A major word of caution: If you own employer stock within your 401k plan, do not sell that stock position, rebalance the account or liquidate the account (for rollover or a distribution of any amount or kind) before discussing the transaction with a qualified advisor that maintains an intimate understanding of tax strategies pertaining to this employer stock position. A specific tax strategy of Net Unrealized Appreciation (NUA), which we discussed in a previous blog post, could provide financial planning and tax mitigation opportunities and may be lost as a result of improper handling. At Spurstone, we perform a detailed analysis for clients with employer stock within a 401k prior to any transactions discussed above and can complete one on your behalf as well.

Ultimately, you will have multiple decisions to make regarding your old and new 401k plans. Each of these decisions should be made within the holistic scope of your family financial planning as they will each have an impact to your long-term financial success. Take the time necessary to evaluate and weigh each of your options and ensure you have the information and support to make informed decisions.

Check back next week for part five in which we will be discussing insider status changes, insider trading restrictions and privacy concerns for executives of the newly spun off corporation. You may not have been subject to these regulations at the parent company but as you will see that may change with your new employer and is a major issue to be prepared for.

If you would like to privately discuss your personal executive compensation planning, including ways to potentially reduce risk or mitigate taxes, contact our team today.


Tim Golas
Spurstone Executive Wealth Solutions