125 Plan Termination Time for incurred expenses

[Guest Leland]

I have a client that recently purchased a company and has terminated the existing 125 plan previously sponsored by the aquired company. The question has been raised as to whether or not the employees from the aquired company have the right to incur expenses and submit them for reimbursement through their FSA's [through the end of what would have been the Plan Year; 12/31], or are they cut off as of the day of Plan termination.

Any thoughts would be helpful.

[mroberts]

Is there a reason he is terminating the plan? Does the acquiring company have a flex plan and are all the acquired employees being moved under this plan?

[Guest Leland]

Thank you for your reply. Here are some more specifics:

* Company A [9 ee's] and Company B [200 ee's] both maintained 125 plans and were a brother-sisiter controlled group.

* Company C purchased both companies in a stock purchase.

* Company C [parent] now wants to dissolve Company A, terminate their 125 plan, and allow the old Company A ee's to participate in the Company B 125 plan. Company B will be maintained as a wholly owned subsidiary.

This raised the question as to the account balances in the Company A 125 plan. Can they continue to incur expenses and recieve reimbursements through the end of what would have been the end of the Plan Year [12/31]? Or would the accounts be transferable to the Company B plan?

Thank for your input.

[mroberts]

In this case it would seem that the funds from Company A could be rolled into Company B since the employees are not being terminated. Since an FSA is basically an employer account holding the deductions of employees until they use it for incurred expenses, it all works out the same. Work with the TPA who is handling Company's B Flex Plan to do the necessary contract work.

[Guest Leland]

Thanks so much for your reply. I agree with you based on the analogy of a successor employer theory [because we have a stock purchase; not an asset purchase].