Whether you work in technology, law, or financial services, there’s a good chance at some point your employer will go through a merger. Recent local examples include Array BioPharma’s pending acquisition by Pfizer, and Broadcom’s purchase of CA Technologies. It can be exciting, albeit stressful time. There can be career and financial disruption, often in positive way if you own stock in the acquired company. Remember these points to make sure you’re covering your financial bases
Consider Your Stock. Perhaps the most complex aspect of a merger for employees is company stock. Stock options are a common way to compensate employees, and there are important differences if you have incentive stock options (ISOs) and non-qualified stock options (NSOs). In some cases ISOs can be exercised and sold at a low capital gains tax rate. Otherwise with stock options, you’re probably looking at paying ordinary income tax on your windfall, plus Medicare and Social Security tax in the case of NSOs. Some good news is that under an acquisition, you may have right to accelerate vesting of options, rather than having to wait.
With employee stock awards and purchase plans, you have already paid taxes on the purchase price of the stock in most cases. If you hold on to the shares for at least one year, then you could qualify for lower tax on the gain. Things get more complicated if your current employer is being purchased for stock. You may end up exchanging your company stock or options for those in the acquiring company. If the amount at stake is significant to your finances, it makes sense to seek advice from a skilled tax planner. For more information about employee stock compensation, I recommend Consider Your Options by Kaye Thomas.
Review Your Retirement and Insurance Benefits. With a new company comes new benefits. If your spouse is working, revisit whether your family health insurance should come from one or both employers. If you have access to a Health Savings Account qualified health insurance plan, arrange for deposits into the HSA to maximize your tax deduction. If you have lost access to an HSA qualified plan, then you may need to stop new HSA contributions. In addition, you may qualify for new, free life insurance, or might be losing it with the transition.
Another potential merger move is to directly transfer your 401(k) into a rollover IRA at the financial institution of your choice with no taxes or penalties due. If you’re comfortable managing your own funds or hiring a financial planner to do it, you can benefit from a wider range of investments available in an IRA. Your new employer may have a very high quality, low-cost retirement plan. In that case, you can consider moving funds directly to the new 401(k). If you have a loan against your old employer’s 401(k), it’s usually better to move the funds (and loan) to the new plan. Finally, be mindful if you have Roth or after-tax 401(k) contributions that the special tax advantages are maintained by rolling the funds directly over to a Roth IRA.
Assess Your Career But Avoid Rash Decisions. After a merger, you may end up with diminished career prospects or the new company culture may not be a good fit. Ensure that your LinkedIn profile is up to date as well as your career contacts, which may have grown stale. Even if you dread the move, you may end up better than you anticipate. Plus there’s always the potential of the new employer offering you a severance package, which can make an unplanned sabbatical all the more sweet.