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Health and Welfare in asset sale


Guest sidalee1
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Guest sidalee1

I believe there is an advisory opinion out there (or some other authority) somewhere wherein the DOL (or other governmental entity) indicated that it is okay for a selling entity to continue the former employee's in its plan for a short period of time (realizing that it might take time to get the seller's employees in the buyer's plan) after the transaction, but I am having a difficult time finding it - any help would be appreciated! Thanks

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  • 2 months later...
Guest krijowri

I'm bumping into a similar situation. Anyone out there have any thoughts on a seller's ability to keep its former employees in its own plan for a short time period, while being reimbursed for the costs of such coverage by the buyer?

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Guest matthew222

Sellers can continue their benefits programs. I don't even think the period of time needs to be "short". As long as the company pays its premiums, the insurance carriers aren't going to object to anything. How employee benefits are to be handled should obviously be spelled out in any M&A contracts. In some instances, it might make sense to keep the benefits separate depending on company cultures and locations.

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Guest matthew222

I don't see how a MEWA comes into play. There aren't multiple employers coming together for the sake of purchasing insurance.

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I don't see how a MEWA comes into play. There aren't multiple employers coming together for the sake of purchasing insurance.

The seller's plan would in effect be covering certain employees of two employers (the buyer and the seller).

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Guest matthew222

The original poster didn't indicate that employees from the buyer's plan are going to be on the seller's plan. Just the seller's employees are going to continue on the seller's plan.

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Guest matthew222

The question, for the most part, was whether the seller can continue its health plan after being acquired. The asnwer is yes. Let's not muddy the waters.

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You probably were thinking of something in the MEWA regulations. This is in the proposed regulations as an exemption from the MEWA reporting requirement. It might be in the existing regulations as well...

(B) The entity provides coverage to the employees of two or more employers due to a change in control of businesses (such as a merger or acquisition) that occurs for a purpose other than avoiding Form M-1

filing and is temporary in nature. For purposes of this paragraph, ``temporary'' means the MEWA or ECE does not extend beyond the end of the plan year following the plan year in which the change in control

occurs

If you are insured, look at the policy. It may state that it only covers those actively at work for 30 hours or more. Then--big claim and the insurer denies coverage because employee not eligible under the terms of the plan/policy Self-insured you have the same concern for stop loss. This is coming up a lot more often--maybe not in this context, but in employers leaving employees on a policy when they are out of work beyond FMLA periods, expanding coverage beyond COBRA etc. The employee is not covered under the terms of the insured plan or stop loss and the employer can be left holding the bag.

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  • 6 months later...

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