former controlled group and section 125 plan

[eilano]

2 companies were part of a controlled group in 2002. In 2003, the ownership percentages changed and the 2 companies were no longer a controlled group. There is a section 125 plan in which both companies participated in 2002 and 2003. Company B was no longer part of a controlled group and was told after the fact that it couldn't participate in the section 125 plan. Can company B still participate in the section 125 plan? If not, what happens to the payments that were made on behalf of the employees for 2003?

[sloble@crowleyfleck.com]

Why was B told its employees could no longer participate? Employers that are not in the same controlled group can still co-sponsor a cafeteria plan if they are still in the same affiliated service group. See Code Sec 414b,c or m. Is B no longer part of the definition of "employer" in the plan? You need to look at the plan document and relevant corporate documents involving the change of corporate structure to make sure that 1) B is in fact no longer an employer sponsor and 2) requisite authoritity was used to oust B as a sponsor.

What have they been doing with the contributions up until now?

[eilano]

Because they were no longer part of the controlled group. Also, they are not considered an affiliated service group. They have been making premium only payments to the health provider.

[GBurns]

What is the difficulty why Company B has not adopted its own plan?

What is the difficulty why any account balances were not transferred either to a Company B plan or out of Company A's plan, anyhow?

As AshleyL asked " What have they been doing with the contributions..?"

You stated that "They have been making premium only payments to the health provider". Does that mean that there is other money, such as a health FSA etc? If there is shouldn't that money be with the TPA? What has happened with employee reimbursement claims?

I am also wondering about these "premium only payments". If these premiums are entirely employer paid and there is no employee contribution for health insurance, it raises the question of How come Company A is paying premium for persons who are not their employees oe retirees? If there is an employee portion, why is Company B sending payroll deductions to Company A? If Company B is sending payroll deductions, is any of this premium for any insurer other than the "health provider"? If so, what has happened to those policies since they have not been paid?

Also, is the insurance company aware that both the employee group and covered employers has changed dramatically?