GAO: Effect of Corporate Restructuring on Retirement Benefits Unclear

While it’s clear that mergers and acquisitions comprised the largest share of restructuring in the last two decades, their effect on retirement benefits is less so, says a new Government Accountability Office (GAO) report.

In “Retirement Security: Trends in Corporate Restructurings and Implications for Employee Pensions,” the GAO studied corporate restructurings during the period 1999-2018 and their implications for retirement benefits. It undertook the study because it was asked to describe trends in corporate restructuring trends in the last 20 years and what is known about their effects on pension benefits for employees and retirees.

Restructurings

The GAO found that mergers and acquisitions were more frequent when the economy was expanding. The number and dollar value of completed M&As peaked in 2000, 2007, 2015-2016 and 2018, and M&As have been completed faster since 2009 than they were before. Corporate takeovers were the most common M&A actions, the report says.

Effect on Retirement Benefits

“Participants’ retirement benefits are often dependent on the financial well-being of their employers,” says the report, continuing, “Recent examples of corporate restructurings, such as M&A or bankruptcy restructurings, show they can result in a change or elimination of retirement benefits, thus affecting the financial well-being of workers and retirees.”

Some experts that the GAO interviewed pointed out that corporate restructuring may prompt a company to reconsider employee benefit programs. Furthermore, the GAO reports, some said that time can be short for some affected parties, including employees and retirees, to determine how restructuring will affect a plan — and that can even result in retirees and other stakeholders being excluded from negotiations.

While clear results emerged concerning changes in corporate structure, they were more elusive regarding the implications for retirement benefits. “Their effects on pension benefits are often difficult to determine. Comprehensive data detailing the effects of corporate restructuring on retirement benefit plans do not exist,” says the report. It continues, “The effects of corporate restructuring on retirement plans are generally unclear. Limited data make it difficult to understand or determine the effects, if any, of corporate restructurings on pension benefits.”