Bench & Bar July/August 2025

FEATURE: COCKTAIL LAW VOL. II

ABOUT THE AUTHORS

plan sponsors must provide a COBRA Elec tion Notice to qualified individuals within 14 days of notice of the qualifying event. 13 Another issue to consider is the poten tial tax implications of compensation or benefits offered at termination. Severance payments can be considered deferred com pensation subject to Section 409A 14 unless an exception applies. Although Section 409A does not apply to most severance plans or agreements due to several exemp tions, failure to comply with Section 409A for those agreements subject to the rule can result in full taxation of all deferred compensation of the same type, plus a 20% penalty tax, plus interest if compensation was deferred in a year before the year of the violation. 15 Another common situation that can arise is when an employer offers to pay for a severed employee’s COBRA premiums following termination. Done incorrectly, this can lead to the amount paid by the employer being taxable income to the former employee. WHAT HAPPENS TO BENEFIT PLANS WHEN BUYING OR SELLING A BUSINESS? One area where employee benefits profes sionals encounter the most issues is mergers and acquisitions. As M&A transactions progress, the focus of due diligence tends to shift towards revenue implications, leaving benefits considerations as an afterthought. However, failing to consider benefit plan implications can create a ripple effect of consequences when it comes time to finally close out a deal. In an equity sale, the buyer acquires the target company’s or its parent entity’s shares, and as result, typically assumes responsi bility for the target’s current workforce and benefit plans. On the other hand, in an asset sale, the buyer has more flexibility select ing which employees to retain and which, if any, benefit plans to adopt. Even if the buyer chooses not to assume any benefit plans, there may still be some liability for benefits, specifically under COBRA as a “successor employer.” The buyer in an asset sale becomes a “successor employer” if (1) the seller ceases to provide any group health plan to any employee; (2) the cessation

ENDNOTES 1 Employee Retirement Income Security Act of 1974, 29 U.S.C. 1001 et seq. 2 Consolidated Omnibus Budget Reconciliation Act of 1985, 26 CFR §54.4980B-1. 3 Health Insurance Portability and Accountabili ty Act of 1996, 42 U.S.C. 1320d et seq. 4 Employee Stock Ownership Plan, 26 U.S.C. 401(a). 5 Employee Benefits Security Administration, History of the EBSA and ERISA, https://www. dol.gov/agencies/ebsa/about-ebsa/about-us/ history-of-ebsa-and-erisa 6 Id. 7 The Patient and Affordable Care Act, 42 U.S.C. 1801 et seq. 8 Id . 9 29 U.S.C. § 1104 10 Id. 11 26 U.S.C. § 54.4980B-1 12 Id . 13 26 U.S.C. § 54.4980B-6 14 26 U.S.C § 409A 15 Id . 16 26 CFR § 54.4980B-9 So, don’t run to the bar or restroom when a benefits loving potential client walks up, dazzle them with your knowledge while you roll through your mental rolodex of benefits lawyers who can help you. occurs in connection with the sale; and (3) the buyer continues the business operations associated with the assets purchased with out interruption or substantial change. 16 In these situations, the buyer’s plan must offer COBRA coverage to any M&A beneficiary. Buyers and sellers may contract to allocate COBRA responsibility to the party who does not have it under the COBRA regu lations. However, if the party fails to fulfil its COBRA obligation under the contract, the responsibility is ultimately on the party who initially had responsibility under the regulations. In addition, diligence should examine if, how, and when benefits policies may be terminated or assigned. And are any fees going to become due because of this potential termination or assignment. It is important to keep this and all benefit plans of either party in mind throughout the lifecycle of the deal. CONCLUSION

JOHN R. KIRK is a partner at Bricker Graydon, LLP, where he practices exclusively in the employee benefits area. Kirk specializes in providing comprehensive sup

port for employers of all sizes, including both public and private entities. His exper tise spans all facets of employee benefits, including the design, implementation, and compliance of tax-qualified plans such as 401(k) plans, 403(b) plans, ESOPs, and sup porting clients’ health and welfare plans. He has extensive experience representing plan sponsors, trustees, and fiduciaries in trans actions involving ESOPs. In his practice, he guides companies through the entire ESOP life-cycle, including formations, acquisitions, divestitures, and administra tion matters post-formation. Kirk further assists ESOP entities and other benefit plans with governmental audits/investigations and litigation. He earned his J.D. from the University of Kentucky College of Law, and a B.S. in accounting from Georgetown Col lege. He lives in Union, Ky., with his wife, Casey, son, Jack, and daughter, Nancy.

MICHAELA TAYLOR SHEPPARD is an associate in the employee benefits practice group at Bricker Graydon, LLP, specializing in the design, administration, and regulatory compliance of a diverse array of employee

benefit issues, including welfare benefit plans, health care reform, tax-qualified retirement plans and executive compen sation. She supports clients in navigating the intricacies that emerge during plan administration. Sheppard regularly assists clients on issues related to reporting and disclosure requirements, compliance with ERISA, the SECURE Act, the Internal Reve nue Code, the Affordable Care Act, HIPAA and COBRA. She is located at the down town Cincinnati office. She is a “super cat” holding a BHS in Clinical Leadership and Management, Master of Health Adminis tration, and a J.D. from the University of Kentucky. She resides in Covington, with her husband, Dillon, and two goldendoo dles, Woodford and Weller.

22 july/august 2025