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School district mergers


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GROAN. Ok, so let's say you have school districts A and B. Both sponsor cafeteria plans, which are calendar year plans. The plans have different provisions.

Let's further say that the school districts are legally merging on July 1, 2018, into one new unified school district. This merger date is a legal agreement and is set in stone.

I don't know what they WANT to have happen - at this point, only trying to determine what options might be available. 

What happens to the plans once the merger takes place? Can the plans merge into one plan, but maintain the same provisions for the separate employee populations for the balance of 2018?

Alternatively, possibly thinking outside the box, can the elections made for 2018 in Plan A and Plan B specifically state that they are for 6 months only? And then they make new elections, under a new plan sponsored by the new entity?

Somewhere in the back of my head, for no reason I can discern, it seems like there is some prohibition against consecutive short plan years in cafeteria plans. But even if true, since as of 7/1/18 there is a new entity, then perhaps this wouldn't apply?

Perhaps Revenue Ruling 2002-32 can be relied upon to prohibit any CHANGE in employee elections for the second half of 2018?

Any thoughts are very welcome.

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Before you explore the opportunities for adjusting a coverage period, might one or both of the plans of the to-be-merged employers already provide a coverage period of July 1 to June 30?


Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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It seems as though IF the new school district, which is a new legal entity with a new EIN, "merges" the plans of the prior separate school districts into a "new" plan established by the new school district,  that there could perhaps be (at least) two valid ways of handling?

One, have the new plan carry over the elections from the prior plans for each separate group of employees for the balance of 2018, and then have new elections for 2019? Rev. Ruling 2002-32 would appear to support this.

Two - create a new plan, with a short year for 7/1/2018 - 12/31/2018, and allow new elections?  It seems like somewhere in all this mess that a dose of common sense is needed - since the guidance, IMHO, is not specific enough, it seems like a reasonable compliance attempt ought to be sufficient? Thoughts?

These are governmental non-profits, so I'd like to think the IRS would cut them a little slack upon audit.

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