Cobra And Controlled Group

[Guest NPWA]

The facts on this one are a little convoluted, but I would very appreciate anyone's help or insights.

Company A shuts down its only factory. All but a handful of employees are terminated. COBRA coverage has not been timely offered. Company A subsequently terminates its group health plan (after the employees are terminated but before any COBRA notice). Company B is now in Chapter 7 bankruptcy and its assets are being bought out of bankruptcy by an entity that is clearly not a successor employer because it will not employ any of the employees and will not continue the business in substantially the same way.

Company B is a member of Company A's controlled group and maintains a group health plan covering its employees.

It is clear to me that existing qualified beneficiaries who had elected COBRA coverage cannot have their coverage terminated due to the termination of Company A's group health plan because another member of the controlled group continues to sponsor one. Company B would have to provide COBRA coverage to those people.

What I don't know is this--does Company B have to offer COBRA coverage to the employees who lost their jobs and their coverage when the factory shut down? They and their covered dependents are "qualified beneficiaries" as defined in the regulations, but they have not elected COBRA nor even been offered it.

It doesn't seem logical to me that Company B would have to pick up those qualified beneficiaries who have already elected COBRA coverage, but that qualified beneficiaries who did not even have a chance to elect COBRA are out of luck. But I can find no authority indicating that Company B would have to do that.

Apologies for the length of the post. Any help will be much appreciated.

[Sandra Pearce]

In an asset sale (which I realize this is not) the employees of Company A that were terminated prior to or in connection with an asset sale to Company B would be COBRA qualified beneficiaries to Company B. Logic would make me believe that since Company A was a part of the controlled group and obligated to offer COBRA coverage to the employees and did not, the obligation would then fall to the remaining company, Company B. However, before I actually did that I would do my research, put my thoughts in writing and present it to a Benefits Consultant or Attorney.