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Retaining Key Employees: A Unique Merger & Acquisition Benefit

Wednesday, August 31, 2022
Alec Wohlever

By: Alec Wohlever, Vice President

Retaining key personnel through a mergers and acquisition (M&A) transaction is critical to ensuring growth and value creation post-close. Mismanaging talent can adversely affect a deal, so it is crucial for companies to develop an intentional strategy before the transaction has closed.

Many traditional retention strategies for key employees involve pay incentives such as stay or performance-based bonuses. While these remain important in any deal, firms are also looking for additional levers that can help bolster their retention strategy. An executive medical reimbursement is a unique program that can have a positive impact on employee retention.

An executive medical reimbursement is a benefit plan designed to complement a traditional major medical plan. These plans allow companies to reimburse their key employees tax-free for out-of-pocket medical, dental and vision expenses for themselves and, if desired, other family members – even if they are not covered by their primary medical plan.

The covered benefit can readily cover any Section 213(d) IRS-approved expenses:

  • Prescription drugs
  • Office visit copays
  • Dental and orthodontic expenses
  • Vision expenses
  • Medical transportation (including air services and hotels)
  • Psychiatric care
  • Smoking and cessation clinics
  • Speech therapy
  • Weight loss programs
  • Infertility treatments and diagnoses
  • Hospital expenses, including private room charges
  • Alcoholism and drug abuse treatment and facilities
  • Home health care

A key feature of these plans is their flexibility since they can be provided to as few or as many employees as the employer would like to designate. These plans are considered “excepted benefits,” so they are not subject to ACA reforms, nor are they subject to 105h discrimination testing. It is important to note that non-W-2 employees, such as K-1 members or more than 2 percent shareholders, are eligible.

Remaining sensitive and committed to key employees’ wants and needs during the M&A process provides a pathway for smoother transactions and value creation post-close. While tried and true methods that provide financial incentives such as stay bonuses are critical, adding unique programs such as executive medical reimbursement plans can prove to be a very cost-effective way to retain key personnel.

Do you need help reevaluating your talent strategy? The Horton Group can help. Call a member of our mergers and acquisitions team at (800) 383-8283 to start your path.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.