Personal Finance

What to know about retirement funds if your employer merges or is acquired

Published

23 hours ago

January 29, 2025

Momo Productions | Digitalvision | Getty Images

Mergers and acquisitions happen all the time between companies of varying size and notoriety. These can be a great opportunity for businesses and owners to achieve their strategic or long-term goals, but often leave employees feeling uneasy and confused about what the deal means for them — especially when it comes to retirement plans.

Here are a few things you should know if your company is being impacted by an M&A transaction:

How M&As negotiate retirement plans

Though it may not be obvious on the surface, the treatment of retirement plans is a critical part of the M&A process.

Before the M&A transaction is finalized, leadership from both companies will typically meet to discuss and compare their respective retirement plan offerings. This includes important items such as contribution limits, applicable fees, investment options, and vesting schedules.

More from Your Money:

Here’s a look at more stories on how to manage, grow and protect your money for the years ahead.

Regardless of the size of your company, there are federal laws that protect many aspects of employee benefits.

The Employee Retirement Income Security Act, or ERISA, for example, ensures that vested employee benefits aren’t adversely impacted because of an M&A transaction. As such, the primary purpose of ERISA is to ensure plans are properly integrated while maintaining employees’ vested rights.

What retirement plan changes to expect

Employees may be understandably concerned over potential changes to their retirement benefits during an M&A transaction, but there are often new retirement options that are an even better fit than their existing plan.

Here’s what an M&A deal can mean for defined-contribution plans such as 401(k) plans:

New investment options: Depending on the situation, employees may gain access to entirely new investment options which could improve their overall retirement outlook. However, employees may have to become comfortable with a new user interface on a different investment platform.

Adjusted contribution levels and matching policies: Changes to contribution limits and employer match policies may be more generous than in an employee’s previous plan. It may also be less competitive in some cases.

Amended vesting schedules: Adjustments to the vesting schedule – how long an employee has to work in order to access the entirety of their benefits – may also occur. This could mean earlier access to retirement benefits, or added restrictions.

Transition to a new plan: If an employer decides to completely replace an existing plan, employees will need to educate themselves on the changes to their benefits and pros and cons of each new plan option.

While pensions are less common today, there are still many people who rely on them or are planning to utilize pension benefits in their retirement. These pension funds can undergo dramatic changes during an M&A transaction, so employees should remain vigilant to any proposed changes to the pension program.

Here’s what an M&A transaction can mean for pension plans:

Continuation under new ownership: The new company may choose to continue the pension program with as few changes as possible. This is typically the most employee-friendly decision.

Freezing pensions: If the new or larger organization decides to freeze pensions, existing benefits will still be provided, but new employees will not be afforded access.

Termination of pensions: In some cases, employers may decide to cut pensions entirely. In these cases, employees may receive a lump sum as compensation for the elimination of the pension program.

Existing balances are secure

Thanks to protections from ERISA and other legal guidelines, employees are safeguarded and can’t “lose” existing money. Companies are prohibited from moving or removing funds that are already contributed by employees, and all vested benefits are secured.

That said, there are some important long-term implications to keep in mind:

Market performance and individual goals: When you change your investment options or contribution amounts and schedules, your projected retirement savings are also likely to change in some way. This is important to monitor, especially if you have retirement milestones that you are expecting to reach.

Stage of life: Employees who are closer to retirement age are naturally going to feel that any changes may impact their future more acutely.

The primary takeaway being existing balances are always secure, but unvested contributions or benefits an employee is expecting to gain in the future may not always carry over to a new plan. Employees should always review all documentation associated with a new retirement plan to fully understand how the changes will impact their short and long-term financial goals.

Employees also have certain legal protections under ERISA that ensure they receive advance notice of any material plan changes, and companies are generally obliged to provide training, documentation and access to additional resources to all employees.

The changes brought on by an M&A transaction can be challenging for even the most seasoned and well-informed employees. Therefore, it is important that employees always utilize the tools at their disposal to protect their financial outlook, especially when retirement is approaching.

Stay informed, ask questions and ensure your financial goals remain on track.

—By Rick Calabrese, Esq., a certified public accountant and co-founder of advisory firm Commonwealth M&A.

Personal Finance

These child tax credit mistakes can halt your refund, experts say

Published

6 minutes ago

January 30, 2025

Business Finance News

Millions of families claim the child tax credit every year — and filing mistakes can delay the processing of your return and receipt of your refund, according to tax experts.

For 2024 returns, the child tax credit is worth up to $2,000 per kid under age 17, and decreases once adjusted gross income exceeds $200,000 for single taxpayers or $400,000 for married couples filing jointly.

The refundable portion, known as the additional child tax credit, or ACTC, is up to $1,700. Filers can claim the ACTC even without taxes owed, which often benefits lower earners.

However, a lower-income family who doesn’t know how to claim the credit “misses out on thousands of dollars,” National Taxpayer Advocate Erin Collins wrote in her annual report to Congress released in January.

More than 18 million filers claimed the additional child tax credit in 2022, according to the latest IRS estimates.

By law, the IRS can’t issue ACTC refunds before mid-February. But the Where’s My Refund portal should have status updates by Feb. 22 for most early filers, according to the IRS.

Here’s how to avoid common child tax credit mistakes that could further delay your refund.

Know if you have a ‘qualifying child’

One child tax credit mistake is not knowing eligibility.

The rules can be “very confusing,” according to Tom O’Saben, an enrolled agent and director of tax content and government relations at the National Association of Tax Professionals.

To claim the child tax credit or ACTC, you must have a “qualifying child,” according to the IRS. The qualifying child guidelines include:

Age: 17 years old at the end of the tax year
Relationship: Your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister or a descendant of these
Dependent status: Dependent on your tax return
Filing status: Child is not filing jointly
Residency: Lived with you for more than half the year
Support: Didn’t pay for more than half of their living expenses
Citizenship: U.S. citizen, U.S. national or a U.S. resident alien
Social Security number: Valid Social Security number by tax due date (including extensions)

You may avoid some eligibility errors by filing via tax software or using a preparer versus filing a paper return on your own, O’Saben said. Tax software typically includes credit eligibility, which can minimize errors.

Missing Social Security number

Typically, parents apply for a Social Security number in the hospital when completing their baby’s birth certificate. But it can take one to six weeks from application to receive that number, according to the agency, which can create time pressure for families with a new addition around tax season.

Filing a tax return and claiming the child tax credit before receiving the Social Security number is a mistake, O’Saben said.

“I have seen [the child tax credit] denied for people who have filed before they got the Social Security number for a dependent,” he said. “And there’s no going back.”

If you don’t have the number before the tax deadline, you should request an extension, which gives you six months more to file your return, O’Saben explained.

However, you still must pay taxes owed by the original deadline.

Personal Finance

Changes Americans would make to close Social Security’s financing gap

Published

19 hours ago

January 29, 2025

Business Finance News

Halfpoint Images | Moment | Getty Images

It’s no secret that Social Security faces a long-term financing gap.

If nothing is done by 2035, 83% of combined benefits will be payable if Congress does not act sooner to prevent that shortfall, according the latest projections from the program’s trustees.

What’s more, new legislation, the Social Security Fairness Act — which increases benefits for more than 3 million workers who also receive public pensions — is expected to move that depletion date six months sooner.

A new survey asked more than 2,200 Americans — most of who expect Social Security to be an important part of their monthly retirement income — how they would solve the problem.

Most respondents, 85%, said they would prefer benefits remain the same or are even increased — even if that means raising taxes for some or all Americans, according to the survey from the National Academy of Social Insurance, AARP, the National Institute on Retirement Security and the U.S. Chamber of Commerce in collaboration with Greenwald Research.

“They’re willing to pay more, not to get extra benefits for themselves, but just to close the financing gap to prevent indiscriminate across the board benefit cuts,” said Tyler Bond, research director for the National Institute on Retirement Security.

Meanwhile, 15% of respondents said they would prefer tax rates not increase, even if that means benefits are reduced.

What changes Americans would prefer

The survey used a tradeoff analysis to let respondents pick the policy changes they would not only prefer to see — but also for which they would also be willing to pay.

The results found a combination of changes was preferred by most respondents, regardless of their political affiliation, income, age or education.

The most popular policy option with respondents was eliminating the payroll tax cap for individuals earning more than $400,000.

For 2025, employees and employers pay taxes toward the program on up to $176,100 in earnings. Once high earners hit that cap, they stop contributing Social Security payroll taxes for the year.

The change would reapply payroll taxes starting at $400,000 in earnings. Individuals affected would not receive additional benefits.

A second policy option that was nearly as popular was raising the payroll tax rate. Currently, employees and employers each pay 6.2% toward Social Security. The change would raise that to 7.2%.

Maximizing your Social Security benefits

Other changes favored by respondents aim to make benefits more generous by adjusting the annual cost-of-living adjustment to more accurately reflect the spending habits and inflation affecting older Americans; providing a caregiver credit for people who stop working to take care of children under age 6; and providing a bridge benefit to workers in physically demanding jobs to help soften cuts for claiming early.

The least popular change was to reduce benefits for people with higher incomes. That would affect individuals with $60,000 or more in annual retirement income excluding Social Security, and married couples with $120,000 or more.

Taken together, the changes would close Social Security’s funding gap and result in a minor 1% surplus, according to NIRS’ Bond.

Notably, other changes that have been suggested elsewhere — raising the retirement age, across-the-board benefit increases and changing taxation of benefits — were not selected by the survey respondents.

Long history of strong public support

The new report coincides with another report released by NIRS this week that analyzed Social Security polling over more than four decades and found public support for the program remains strong.

“Not only do people consider Social Security a really important program, but they really want to make sure we’re spending enough on the program so that it can be there when people are ready to collect their benefits,” Bond said.

Notably, confidence that Social Security benefits will still be available tends to increase as people get closer to retirement age, he said.

Personal Finance

Make this your ‘last resort’ to cover an emergency expense: advisor

Published

19 hours ago

January 29, 2025

Business Finance News

Rainstar | E+ | Getty Images

People who use a credit card to cover an emergency expense are solving only part of the problem.

Why? Because while using a credit card for emergencies can be helpful in the short term, carrying a balance can lead to significant interest charges if not paid off quickly.

About 25% of respondents said they would use a credit card to pay for an emergency expense and pay off the card balance over time, according to a new report by Bankrate. That is up from 21% in 2024.

The site polled 1,039 adults in early December.

Paying off unexpected expenses with credit should be “a last resort,” said certified financial planner Clifford Cornell, an associate financial advisor at Bone Fide Wealth in New York City.

If you don’t pay the balance off, you’re faced with high-interest rate debt. The average annual percentage rate for credit cards is now about 20%, according to Bankrate data.

Let’s say your home water heater breaks — a repair that costs $600 on average, per SoFi. If you put that cost on a credit card with a 20% interest rate, you will pay about $10 in interest if you can’t zero out the balance after a month, according to a Bankrate calculator.

Make only the minimum payments toward that debt, and it will take you more than five years to pay it off, Bankrate estimates. That means you’ll pay nearly $400 in interest.

“Using your credit card to pay for ’emergency expenses’ is just incredibly expensive,” CFP Lee Baker, founder, owner and president of Claris Financial Advisors in Atlanta. He’s also a member of CNBC’s Financial Advisor Council.

Imagine you’re paying this debt off and a new emergency comes up, compounding the problem: “While the timing of these instances can be uncertain, the inevitability of them is not,” said Mark Hamrick, a senior economic analyst at Bankrate.

Who uses credit cards for emergencies

Individuals who lean on credit cards in emergencies might not have enough savings to cover the tab, experts say.

While “there’s a reason they’re in that position to begin with,” it might not necessarily be rooted in poor financial decisions, Baker said.

“It could be someone younger who has simply not had the time to build up some emergency savings,” he said.

In fact, the same Bankrate report found that only 28% of Gen Z adults — or those of ages 18 to 28 — can pay for a $1,000 surprise expense in cash.

Instead, the group is more likely to pay an unexpected cost with a credit card and pay it off over time.

About 27% of Gen Z adults will finance an emergency on a credit card, compared with 25% of millennials, or adults ages 29 to 44, according to Bankrate data provided to CNBC.

To compare, 25% of Gen X — adults ages 45 to 60 — would pay for an unexpected cost with a credit card while 21% of baby boomers — those ages 61 to 79 — would do the same.

Experts urge individuals to create an emergency fund, whether that means putting away even a small amount in a separate account every month.

Advisors suggest that people should aim for three to six months’ worth of living expenses in case you have big unexpected expense, suffer from a job loss or face major medical bills. But saving that much money “can be a very daunting task,” Baker said.

Instead, “think of it like a ladder” and break it down into smaller, achievable goals to gain momentum, he said.

In the end, “having that cash reserve will really provide a lot of peace of mind,” Cornell said.

What to do if you need credit for an emergency

If you’re in a situation where you do not have enough emergency savings and need to rely on a credit card, “you’re going to want to pay that down as quickly as possible” to avoid high interest tacking onto the original balance, Cornell said.

If you can’t, Baker says to “absolutely avoid paying [just] the minimum.” Attempt to break the cost into two or three larger payments to avoid incurring as much interest, he said.

A third option to consider is a potential 0% balance transfer card. If you qualify, the card often allows you to pay off the outstanding balance for a set period of time with zero interest, Baker said.

“It can be a terrific opportunity, but you [have] to use it wisely,” he said.