Friday, September 20, 2019

When Your Deal Involves a Pension

Corporate deals abound perhaps like never before. Mergers, acquisitions, consolidations -- call them what you will. They're still deals and they involve pensions, sometimes frozen, more often than you think. If you are the acquirer in any of these transactions, it would not be at all surprising to find that your team is giving these pensions were getting shorter shrift than they deserve.


More than most other elements of a corporate transaction, the costs of sponsoring a pension plan (single-employer) or being a participating employer in one (multiemployer) are both volatile and perhaps a bit out of your control. On the surface, that's bad. And, a significant problem is that traditional due diligence does not address this.

What do I mean by that? There are plenty of firms out there that perform due diligence in deals. On the financial side of this, the work is typically done by large accounting firms and their consulting arms or by the larger, traditional, multi-service consulting firms. What I have seen, and I have by no means seen everything, tends to be a fairly standard report with numbers filled in. It often relies a lot on the past and tends to assume that the past will be reflective of the future. For many of those future costs, that's probably not a horrible assumption. For pensions, unfortunately, it often is.

You see, whether you are focused on cash or on financial accounting, the amount of your future costs is dependent on rules. The rules are complex and they do not lend themselves to cost stability. Today, estimating what those costs will be is not easy. Doing so under a variety of economic scenarios is more complex and likely more expensive. Developing strategies to control those future costs adds even more difficulty and even more cost. It also takes a long time. And, of course, you are never able to work with current or perfect data. In the future, it will be much simpler. At least that sounds nice, but our predictions about the future are often wrong.

The future is here. It's here today.

Everything I said above that was difficult and expensive and more difficult and more expensive and takes a long time -- it doesn't have to.

We don't need great data. We don't need to bother your staff. We can move at the speed of deals. And it won't break the bank.

That future you were hoping for -- it's here now.