Employer purchases a business that maintains a 125 plan

[MarZDoates]

This is not my area of expertise....so I would appreciate any and all input I can get from you experts out there!

We have a client that purchased a business. The client does not sponsor a Section 125 plan, but the business it purchased does. What needs to be done in this situation? Do the Contolled Group rules (as in the case of qualified plans) pertain to 125 plans?

Thank you.

[401 Chaos]

Just to be sure we are clear on the situation, I assume from your post that the client acquired the company as part of a stock deal and thereby assumed the cafeteria plan as a matter of law rather than having simply acquired the assets of the other company and thus likely not assuming the cafeteria plan.

If you have a stock sale, i believe Code § 125(g)(4) and Code § 414(t) generally require you to include all employees of the controlled group as determined under Code § 414 when performing various cafeteria plan eligibility and nondiscrimination tests. The controlled group rules can get very complicated when trying to apply them to unusual fact patterns or new corporate reorganizations and generally benefit from the advice of experienced tax counsel used to dealing with these issues.