SUB-Pay Plans Assist Multiple, Billion Dollar Acquisitions
Mergers or acquisitions of multi-billion dollar corporations frequently result in staffing redundancies and involuntary layoffs involving hundreds or thousands of employees over several years. Given the high cost of these layoffs, the acquiring companies are seeking ways to reduce the surplus staff and the associated severance costs while offering generous severance packages to the terminated employees. Today, Supplemental Unemployment Benefit (“SUB-Pay”) Plans are being implemented as a much better alternative to the traditional severance plan.
In 1954, a foreign-owned printing company began with a single printing press. In the mid-80’s, the company began a major expansion, acquiring another printing company then followed with additional acquisitions in 1988 and 1990. In 1999, the company merged with another major printing company in a $3.0 billion deal.
In 2000, the company began encountering a difficult period as the economy declined and the print market shifted more into digital media. The company undertook a major reorganization of its North American publishing business, closed several printing plants, and initiated staff reductions. As the printing market continued to decline and the layoffs continued, the company sought to lower its staff reduction costs while continuing to provide generous separation benefits to its downsized employees. On the recommendation of its Big 4 accounting firm, the company implemented a SUB-Pay Plan and hired TMS to administrate their complex plan which involved two payroll systems and payroll centers in 100 locations.
For eight years, the SUB-Pay Plan continued to provide significant cost savings for the company and provide significant additional benefits their separated employees. However, as the market deterioration and business issues continued, in January 2008 the company filed for Chapter 11 bankruptcy protection. In mid-2009, the company emerged from creditor protection.
In July 2010, a leading printing company purchased the company, creating a combined company with annual sales exceeding $5 billion. As with the prior acquisitions, with more than 28,000 employees in the combined firm, staffing redundancies are anticipated during the integration process and the SUB-Pay Plan is likely to be an integral part of the company’s staff rightsizing process.
Each of these acquiring companies have utilized SUB-Pay Plans to significantly reduce severance costs for the company while at the same time providing downsized employees with additional separation benefits, Since 2000, these companies:
- Reduced their traditional severance plan costs by 39.3%;
- Provided the downsized employees with more than $4.4 million in additional benefits from tax exemptions on their separation payments; and
- By outsourcing their SUB-Pay Plan administration to TMS, the cost of administrating the plan for these companies has been only 3.0% of the savings the plan has generated.