Amazon-Whole Foods Merger Likely to See 401(k) Consolidation

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By David B. Brandolph and Kristen Ricaurte Knebel

Amazon’s proposal to merge with Whole Foods Market Inc. may leave employees of the two companies wondering what will become of their retirement plans.

The merger, if it progresses, will involve a decision of whether to consolidate the two companies’ sizable 401(k) plans or keep them separate. Before making that decision, the entity that will survive the merger is likely to consider the implications of each decision on its long-term corporate goals and on the employees it will be retaining, employee benefits plan practitioners told Bloomberg BNA June 19.

Amazon announced June 16 its intention to acquire Whole Foods in an all-cash transaction amounting to nearly $13.7 billion. The transaction is subject to approval by Whole Foods shareholders, in addition to regulatory approvals. If it’s given the green light, the merger is expected to close in the second half of 2017, Amazon and Whole Foods said.

In the case of Amazon, leaving in place both plans, with combined assets totaling nearly $3 billion, could be an easier transition than merging them, attorney Andrew L. Oringer, a partner with Dechert LLP in New York, told Bloomberg BNA. However, because Amazon would likely want to have an integrated platform, it’s unlikely the company would leave each plan in place separately, he said.

Most mergers involving two large 401(k) plans end up with the plans being consolidated, Amy Reynolds, partner in Mercer’s retirement business in Richmond, Va., told Bloomberg BNA. Consolidation usually results in reduced costs due to the economies of scale gained by having a larger plan with more assets and participants, she said.

Plan Consolidation

Amazon’s 401(k) plan is the larger of the two plans, with assets of $2.1 billion and approximately 101,000 participants. The Whole Foods 401(k) plan has assets of nearly $800 million and covers approximately 90,000 participants, according to the most recent Form 5500 data.

If the plans are consolidated, Amazon would need to ensure that the resulting plan is “understood and well-regarded by the employees who will be newly joining it,” Oringer said.

Whether Amazon decides to merge the plan or keep two separate plans, either strategy should be straightforward and easily achieved, since it’s very likely that the companies can show they are operating separate lines of business, Edward A. Zelinsky, professor of law at the Benjamin N. Cardozo School of Law at Yeshiva University in New York, told Bloomberg BNA.

Merging of Plans

The process of consolidating 401(k) plans can be a time consuming one, but the “homogenization” of the plans is ultimately cost-efficient for companies, Jeffrey H. Snyder, vice president and senior consultant with Cammack Retirement Group, told Bloomberg BNA.

Plans want one plan document, one record keeper, and one payroll provider, he said. This process, which usually involves a request for proposal to figure out the best fees for the plan, can take a year or two, Snyder said. It won’t happen right away, but “over time, they’ll get there,” he said.

When plans are merged, the surviving company generally can bring the participants of the plan being dissolved into the existing or newly created plan by use of mapping or re-enrollment, Aryeh Zuber, partner with Dechert in New York, told Bloomberg BNA.

When mapping is used, the plan moves participants directly into investments included in the surviving plan that most closely match the investments they were in in their old plan. When the participants are re-enrolled in their new plan, they are asked to select a new portfolio from the plan’s investment menu.

Amazon and Whole Foods didn’t return Bloomberg BNA’s requests for comment.

To contact the reporters on this story: David B. Brandolph in Washington at dbrandol@bna.com; Kristen Ricaurte Knebel in Washington at kknebel@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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