ERISA and Global Benefits

Spin-off Playbook: When Corporate Transactions Impact Benefit Plans

February 19, 2014

The Global Compensation, Benefits & ERISA Practice Group

Corporate spin-offs present a range of equity compensation, 409A, and employee benefits issues that are often under-appreciated, and lately recognized. A recent NYU publication included a comprehensive playbook co-authored by Mark Poerio and a team from TowersWatson (led by Marshall Scott). For advance planning, here is a checklist from which to get started:

Corporate Spin-offs and Employee Benefits


Employees Generally


Determine how to treat employee FSA accounts. Two options:

(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


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


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).


Pre-Spin: Evaluate whether existing plans trigger benefit claims.

Post-Spin: Establish new plan(s), and policies.

Stock Plan

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.


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.

Employee 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.

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