Stupid Question 101:

[Guest new2nqdc]

We are going through two transactions - one stock and one asset sale. One closes in 7/2006 (asset) and the other closes 10/2006 (stock). With regard to the asset sale - we are not assuming any of the plans and will let the transferred employees participate in our plans. With regard to the stock sale, we will terminate the plans at the closing and have the employees participate in our plans.

My boss wants to recognize prior service for purposes of the 401(k) plan, but not for the cafeteria plan.

I found the predecessor employer requirements which appear to apply to the 401(k) plan and the stock transaction - but with regard to the asset transaction - has anyone ever heard of recognizing service for one plan (401(k)) and not another (cafeteria plan)? Also, do the predecessor employer rules (IRC 414(a)) apply to the cafeteria plan? I did find that for self-insured med reimbursement plans prior service does count as service if it is with a predecessor employer per 1.105-11 testing.

[LRDG]

I would consider the possible disadvantage to employees when making the decision, and possible failing non-discrimination requirements and testing. My guess is the 401k assets are attractive and recognizing service dates a win win

What would be the justification for having seperate service dates?

I would research ERISA and the implications of using service dates to recognize the k plan, then ignore service dates for the cafeteria plan benefits.

Specific Sec. 125 code has not evolved to the extent that issues you raise can be addressed within the scope of a cafateria plan.

Because Sec. 125 is subject to ERISA, that's where I'd focus research.

Is there an existing 125 plan for the effected (soon to be aquired?) employees? If so, what's the consequences to EEs of ignoring service dates?

Consider rules under same/similar line of business vs. unrelated/different lines of business.

stupid answer. good luck anyway.