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Thank you all for the advice and suggestions. I am investigating the interpretation of how to handle gains and losses to the terminated participants' accounts, following RatherBeGolfing's suggestion. Once I get a response, I will be able to see what to do next. This is a fine place to work and I am not going anywhere. One incident is not representative of the normal flow of everyday business and there will be a way to resolve this. You can't blame the powers that be for not listening at first. They were relying on a combination of a departed partner's interpretation who had been widely respected as the absolute go to expert on everything, and the document provider's advice. Weigh that against the opinion/misgivings/gut reactions of a new employee, no matter how smart or experienced that employee might be. I am not an ERISA attorney, just an administrator who has been around the block more than a few times. However, with the citations you have all given, I have more arguing power now, and I will find a solution to this.

PLEASE: follow Mike's advice (same as mine). Your client has a problem; you have identified it. If they don't believe you, hire an ERISA attorney who will explain why you are right. They need to change the process. I would read that language as follows: Plan year = calendar year. Participant terminates 6/15. You can pay him out on his PRIOR 12/31 balance. Once you pass the next valuation date (12/31 of the year he terminated), that account get's updated. It is exactly the way we do it, except we pay them out AFTER the year is over in which they terminate and the work is done for that year end. There are safe harbor allocations that often have to be done and can't be done until the end of the year so the payout is not known until the year end work is done. And if they go another year, it gets updated again, and again, and.... you get it!

Update: The deceased DID have a son. I found him by sending out a letter to an elderly relative I found on Truthfinder.com. She turned out to live next door to the kid, and he called in with all of his information. We do at least have someone to pay! And yes, I did ask him for a birth certificate so I can prove to myself that he really is the son.

Not something I would do. As long as it's disclosed it should be legal from your end. Not sure this would be the case for the advisor, they are much more tightly regulated than TPAs. Is this advisor a registered rep? Or an RIA? Has he looked into this? How would other financial advisors perceive this? Would they want the same, or worse, would they figure you and this advisor are working together such that they would not want to refer business to you? Why should you bill it for him? Why not the other way around? You risk getting "spreadsheeted" and replaced. Clients tend to evaluate fees by running a Quickbooks payee report based on what they paid the TPA in the prior 12 months, without regard to what was paid (a restatement? other amendment? Maybe two years admins based on timing of when the work was done each year)? They don't look at 408(b)(2) disclosures when they have their P&L to tell them. They will see they paid you a lot more than the new guy trying to get their plan admin. My $0.02.

I think you are correct. To the extent that Company A (or an entity within Company A's control group) continues to maintain a health plan, it must offer continuation coverage to the terminating employees. If Company A (and entities within its control group) cease offering a health plan to its/their employees, there will be no COBRA obligation.