5 Steps to Take When Your Employer Is Acquired

401(k), Personal Finance
employer-acquired-now-what

By Winnie Sun

Learn more about Winnie on NerdWallet’s Ask an Advisor

In a massive deal for the entertainment industry, Comcast recently paid a reported $3.8 billion to acquire DreamWorks Animation. A week before the acquisition, DreamWorks’ stock had been trading at around $27. Hours after Comcast announced the deal, the stock price surged to about $40.

This may be good news for stockholders, but what about DreamWorks employees? Will entertainment giant Comcast absorb them, or will many find themselves out of work?

When a company is acquired, employees can be among the last to hear about it — instead, rumors may surface in the media before the deal is even announced. Once it’s official, the organization generally tries to allay employees’ fears, assuring them that they will be well taken care of at the new company. But, of course, it’s hard to know if this is true, and employees will want to be prepared.

Tips for employees

If your employer is acquired, it’s important to stay calm and think through any major decisions or changes to your job or finances. Here are some helpful tips for employees:

1. Prepare for a future elsewhere

Typically after acquisitions, employees worry about how secure their position is in the new setting. Others may want to review the culture at the new company to determine whether it’s still a good fit.

If you’re hesitant about being able to work for the new employer or are increasingly unsure about your position, it’s only prudent that you begin looking for opportunities elsewhere. Start by updating your LinkedIn profile and brushing up your resume. Reach out to your network for recommendations and suggestions and apply for attractive positions. You can also consider talking to a recruiter to help you find more fitting opportunities.

2. Take inventory of your equity plan holdings

You can usually log into your intranet stock plan system to see your options and stock holdings. You may want to print out this information and share it with your advisor or tax accountant. Pay attention to both your vested and unvested stock options, especially if you’re considering leaving. Typically, you will be given a maximum of 90 days from your last day of employment to cash out or convert your vested options to stock. Any unvested options will be lost.

In some cases, an acquired company may convert existing stock to the new company’s stock. If this is the case and you’re optimistic about the acquiring company’s stock, this could be great for your investment portfolio. If you’re not so bullish, you may want to consider a selling strategy once you receive the shares. There may be holding restrictions, so you may not be able to sell the new shares right when you receive them.

Consider contacting your company’s human resources benefits team, or even the stock plan provider, to make sure you understand how your stock will vest and what the holding restrictions are, and to ask any other questions. Be sure to discuss any exercise strategies or changes to your stock options with your tax accountant or financial advisor.

3. Consider an IRA rollover

It’s unlikely that the acquiring company and your old company will share a 401(k) provider, so you’ll probably need to transfer your funds from your company’s 401(k). If you can simply roll your funds into the new company’s plan, speak with your advisor to see if this is the best option.

If that’s not the case for your company or you end up leaving, consider rolling over your funds to an IRA so you can avoid taking a distribution from your 401(k). You don’t want to withdraw the money — especially if you are under age 59½ — because you may have to pay taxes, penalties or both. (Of course, you also likely want to keep building your retirement savings.) There may be tax and other consequences involved with IRA rollovers, so consult a financial advisor and be sure you understand the pros and cons before making changes to your 401(k).

4. Pay attention to changes in company benefits

Your medical and dental insurance and other benefits are likely to be modified once your company has been acquired. Typically, this process should not impact your coverage — both companies will likely coordinate efforts to prevent lapses in coverage for employees. However, you’ll still need to pay close attention to any changes to make sure that you meet deadlines for enrollment and that none of your current benefits are erroneously lost along the way.

If you leave your employer and don’t yet have insurance through a new position, you can usually continue to access the same group health plan for a limited time, but generally at a higher rate. Watch the mail for paperwork to continue your health coverage. For a flexible spending account, find out from your benefits team if there is a deadline for submitting any outstanding medical expenses for reimbursement.

You can hold an exit meeting with an HR representative who can explain what benefits you’ll keep and for how long, and what you must take care of before leaving.

5. Talk to your advisor

A shake-up at work is an excellent time to visit your financial advisor and discuss your financial goals and needs. You can use this time to evaluate key items such as your earnings and savings. Are you financially secure, or do you need to bulk up your emergency account? How sustainable is your monthly budget? Your financial advisor can help you determine how well prepared you are for the future, particularly in the event that you lose or must change your job.

Your advisor can also help you think through any decisions you need to make regarding your stock options, 401(k) and other benefits.

Preparation will help reduce stress

In the long run, what will matter most to the Comcast-DreamWorks deal’s success is how well the companies meld their corporate cultures to create one strong company. But even if the acquisition is successful from a business perspective, it could still mean significant changes for some employees.

Ultimately, the more employees can prepare before an acquisition, the better off they will be. For instance, if you are mindful about funding your emergency savings, always contribute to your retirement accounts and regularly meet with your advisor, you will likely be in a strong financial position, capable of handling whatever comes your way. The better you plan and manage your finances ahead of time, the less stressful it will be to navigate any changes an acquisition might bring.

Winnie Sun is the founding partner of Sun Group Wealth Partners in Irvine, California.