A practical M&A checklist for uncovering compliance risk, hidden liabilities, and post-close integration requirements

Why the 401(k) Plan Deserves Close Scrutiny
A 401(k) plan is one of the most regulated components of an employer’s financial infrastructure—and one of the easiest places for risk to hide.

Unlike many operational issues, retirement plan failures do not disappear after closing. Compliance gaps, fiduciary missteps, and funding errors often become the buyer’s responsibility on Day One.

That is why ACS Advisory treats retirement plans as a standalone diligence process, not a footnote to HR review.

Below are the critical questions every buyer should ask—and what the answers actually mean.

1. Has the Plan Ever Failed Discrimination Testing?
If the answer is yes, buyers must dig deeper.

Follow-up questions include:

• Which tests failed (ADP, ACP, top-heavy, coverage)?
• How frequently have failures occurred?
• What corrective actions were taken?
• Were corrections completed timely and documented?

Repeated failures may indicate:

• Poor plan design
• Weak participation among non-highly compensated employees
• Inadequate governance
• Ongoing employer contribution obligations

Testing failures often require corrective contributions that may not be fully accrued on the seller’s books.

2. Who Serves as the Plan Fiduciary?
Buyers must understand who is responsible for the plan—and how seriously that responsibility is managed.

Key questions include:

• Is there a named plan fiduciary or committee?
• Are fiduciary roles documented?
• Are decisions formally recorded?
• Is there an investment policy statement (IPS)?
• Are investments reviewed on a regular schedule?
• Lack of clear fiduciary oversight increases exposure to:
• DOL scrutiny
• Participant claims
• Excessive fee litigation

Poor governance often correlates with higher fees, weaker investment lineups, and operational errors.

3. Are All Required Filings Up to Date?
Regulatory filings provide a window into plan health.

Buyers should confirm:

• Form 5500 filings are current
• Required plan audits (if applicable) are complete
• Any prior filing corrections or penalties exist

Late or missing filings may signal:

• Administrative breakdowns
• Weak vendor oversight
• Broader compliance risk

Filing issues can result in penalties, corrective action requirements, and increased regulatory attention post-close.

4. Are Employer Match Contributions Current?
Unfunded employer contributions are a common hidden liability.

Buyers should ask:

1. Are all match and profit-sharing contributions fully funded?
2. Are true-ups required at year-end?
3. Are there timing delays between payroll and funding?
4. Are any corrections outstanding?

Unfunded or miscalculated contributions may require immediate correction after close—impacting cash flow and deal economics.

5. What Is the Investment Lineup and Fee Structure?
Plan fees directly affect participant outcomes—and fiduciary risk.

ACS evaluates:

• Investment lineup quality and diversification
• Expense ratios and revenue sharing
• Advisor and recordkeeper compensation
• Benchmarking against comparable plans
• High or opaque fees may require:
• Immediate post-close changes
• Participant communication
• Vendor replacement

Fee issues often overlap with fiduciary exposure, making this a critical diligence area.

6. Will the Buyer and Seller Be Part of a Controlled Group?
This is one of the most misunderstood—and consequential—questions in M&A retirement planning.

Buyers must determine:

• Whether common ownership or control creates a controlled group
• Whether retirement plans must be tested together
• Whether plans must merge
• Whether plan design changes are required

Failure to address controlled group status can result in:

• Retroactive testing failures
• Required plan consolidation
• Unexpected employer contribution obligations

This analysis should occur before closing, not after.

ACS Advisory Output: 401(k) Risk & Compliance Score
Buyers working with ACS Advisory receive a clear, actionable assessment that may include:

• Identification of fiduciary oversight gaps
• Compliance and testing risks
• Fee benchmarking and investment review
• Employer contribution exposure
• Controlled group and merger implications
• Post-close integration recommendations

This allows buyers to:

• Adjust purchase price where appropriate
• Require pre-close remediation
• Plan post-close changes with confidence

The Bottom Line
A 401(k) plan may look benign—but it can carry outsized regulatory, financial, and fiduciary risk.

Asking the right questions early allows buyers to:

• Avoid inherited compliance issues
• Protect cash flow
• Reduce litigation exposure
• Streamline post-close integration

ACS Advisory helps buyers turn retirement plan diligence into a source of clarity—rather than a post-close surprise.