Parent wants to continue subsidiary's health care plan...possible?

[Guest ERISAQuestioner]

A parent company would like to become the new plan sponsor for a subsidiary. The subsidiary has a health care plan and is going out of business.

Can the parent become the new plan sponsor and avoid any legal issues related to the subsidiary's going out of business, basically continue things as they have been? (Other than collectively bargained issues--this plan is set up with a union as part of a CBA.)

But, solely from an ERISA perspective, since health care isn't a vested benefit, I suppose the subsidiary could just cancel or continue the plan altogether without any liability?

Thanks in advance!

[J Simmons]

A parent company would like to become the new plan sponsor for a subsidiary. The subsidiary has a health care plan and is going out of business.

Can the parent become the new plan sponsor and avoid any legal issues related to the subsidiary's going out of business, basically continue things as they have been? (Other than collectively bargained issues--this plan is set up with a union as part of a CBA.)

The plan sponsorship may be assumed by the parent, with the consent of the subsidiary (the current plan sponsor). This should be done by plan assumption documents that are signed by the parent and the subsidiary. Once so assumed, the plan would continue 'as is' until it might later be amended. Since this is a CBA plan, obtaining the consent of the union is suggested so that the union does not have additional claims against the subsidiary for, perhaps, breach of contract.

But, solely from an ERISA perspective, since health care isn't a vested benefit, I suppose the subsidiary could just cancel or continue the plan altogether without any liability?

Health care benefits are not required by ERISA to vest, but watch out for what the plan documents might say. By the documents, the subsidiary may have given the employees a vested right. In addition to that, check the CBA agreement to make sure it does not require the continuation of the plan, or require the union to sign off before the plan may be terminated. Otherwise, you can be in breach of the CBA.

[Guest ERISAQuestioner]

Thanks John...I appreciate your views... are you aware of any statutory or regulatory (or case) authority for allowing this switcheroo of the sponsor? Have a great weekend!

[J Simmons]

Not direct authority, but you might take a look at Rev Proc 99-50 for IRS rules about who reports payouts for that part of the year before plan sponsorship changes and who does for that part of the year after that change.

[GBurns]

The subsidiary is going out of business, so why would there be a plan to take over ? Which employees would it cover, it being that since the sub is out of business it would have no employees ?

[J Simmons]

The plan might have retiree health benefits that the parent wants to make sure are honored despite sub going out of business. The parent might be absorbing some of the business operations and employees of the sub that is going out of business.

[GBurns]

Which applies to ERISAQuestioner's case ?

[Guest ERISAQuestioner]

Which applies to ERISAQuestioner's case ?

Yes, the mother company wants to keep the plan for retirees. A key point is making sure the union is on board as well.

Any views from you all about the same problem for a DB Plan? The Plan has been frozen and the mother would like to take over the plan from the subsidiary so it doesn't trigger a termination.