Retirement Security: Trends in Corporate Restructurings and Implications for Employee Pensions

Abstract

Over the past 20 years, corporate restructurings, particularly mergers and acquisitions (M&A) tended to happen more frequently during periods of economic expansion. GAO's analysis found that from 1999 through 2018, M&A activity comprised the largest share of corporate restructurings. In terms of dollar value of completed deals, M&A activity experienced relative peaks in 2000, 2007, 2015-2016, and 2018. The number of M&A deals followed a similar trend. Further, GAO found that company takeovers comprised the largest share of completed M&A activity during the time period, and many completed deals included private equity involvement, that is generally a transaction involving equity capital not quoted on a public exchange. Since 2009, M&A deals, on average, have tended to be completed in shorter time frames. In contrast, large bankruptcies — those $305 million or more in 2018 dollars — occurred during periods of economic distress and peaked during the two most recent recessions. The effects of corporate restructuring on retirement plans are generally unclear. Limited data make it difficult to understand or determine the effects, if any, of corporate restructurings on pension benefits. Two key sources of data we analyzed, the Bloomberg Terminal and the UCLA LoPucki Bankruptcy Research Database, may not contain the full array of restructuring events and do not include data or other key information on pension plans. In addition, pension benefit changes may be made with or without regard to any underlying restructuring event and such restructurings could result in business and economic efficiencies. One expert stated that, as with corporate restructuring events, the acquiring firm will often harmonize their benefits so the target firm's benefits are made similar to the acquiring firm. Thus, some employees could obtain access to another company's pension and benefit programs. Other experts told GAO that a restructuring may prompt a company to re-think its employee benefit structures. Moreover, a few experts said there is less time for some stakeholders, including employees and retirees, to determine how the restructuring will impact their pension plan. As a consequence, these experts said affected stakeholders, including retirees and the Pension Benefit Guaranty Corporation may be excluded from certain negotiations. As noted in previous GAO work, bankruptcy transactions may have adverse effects for employees as bankruptcy can be a contentious process where stakeholders compete for assets that are often diminishing in size. On average, firms that emerge from bankruptcy do so with over one-quarter fewer employees than they had prior to filing for bankruptcy.