Aquisition/merger of acquired company's cafeteria plan into acquired company's plan

[Guest jdglennCPA]

Company A acquires Company B in a merger April 1. All employees of Company B will be employees of Company A and integrated into A's payroll system on July 1. Company A has a flexible spending account (FSA) with a limit of $2,500. Company B's FSA limit is $5,000. Does the $5,000 limit have to be preserved for Company B employees when they are integrated into Company A's plan a based on two senarios: 1 - If Company B's plan merges with Company A's plan or 2- The employees of Company B are terminated as of the effective date of the sale.

[mbozek]

The answer to the question is usually found in the terms of the purchase agreement. In many cases there is is a clause that says the acquired employees will receive comparable benefits to what they had under the former employer for a period of time after the acquisiton. If the document is silent then the acquirer can make any changes to future benefits after the closing. Why not call A's lawyer?

[Kirk Maldonado]

Mbozek:

You have been more fortunate than I have in situations like the one in this thead. The vast majority of times when I got involved after the fact, the acquistion agreement will not provide any light on issues like this.

Of course, the opposite would be true if the acquisition had been a very sizeable transaction, say in excess of $300,000,000. In deals of that size, typically both sides will be represented by competent ERISA counsel, so you often find a great deal of detail in the acquisition agreement on these types of issues, because those points were vigorously negotiated by the ERISA attoneys.

[mbozek]

I was once asked to review a $3,000,000 acquisition for benefits issues 2 hrs before closing. The deal closed before I could make any recommendations. If the purchase agreement is silent then the benefits to B employees will be determined by A.

[Guest jdglennCPA]

This is a small acquisition so I am assuming expensive ERISA council has not been sought. I think from the reply's that as soon as B's employees become A's employees then B's ee's have to enroll in A's plan. The FSA deducted will then be paid out based on the claims procedures as stated in B's plan documents for terminated employees. How does that sound?

[Guest b2kates]

you might want to review a copy of Rev Rul 2002-32

[Guest jdglennCPA]

Ok...I read 2002-32. Through-out it refers to the transaction as an asset-sale. I think this would have the same applicability as a stock-sale...I really can't see any differences. The employees are going to be integrated in the payroll system of the buyer even though it is a stock sale.