FSA following sale

[Guest Nini]

What happens to a health fsa when there is a purchase transaction involved?

Buyer and seller both maintain a health flexible spending account. Upon the closing of the sale, do the elections under the sellers plan terminate and underspent accounts offered COBRA or can the underspent amounts transfer to the buyers plan and election for the coverage period continue under the buyers plan?

Any guidance/experience in this issue is appreciated - thanks.

[J Simmons]

What happens to a health fsa when there is a purchase transaction involved?

Buyer and seller both maintain a health flexible spending account. Upon the closing of the sale, do the elections under the sellers plan terminate and underspent accounts offered COBRA or can the underspent amounts transfer to the buyers plan and election for the coverage period continue under the buyers plan?

Any guidance/experience in this issue is appreciated - thanks.

Take a look at Rev Rul 2002-32.

[LRDG]

I would suggest not changing the FSA in any way that would restrict the participants under the newely aquired entity until the anniversary date. At that time provisions under both plans can be made uniforme via plan amendments.

If the plan year anniversary dates are out of sinct, use a short plan year at the next plan anniversary date to get both plan under one plan year. In this case the plans may opperate under 2 plan documents, but they can both opperate under the same provisions via plan amendmens.

If the plan years are not unique, and the plan years are the same, at the next anniversary ate all participants can be brought under the same plan documents. Announcements concerning plan changes and employee Q&A meetings, should be held prior to the annual open enrollment and before the plan anniversary date.

Any financial agreements between buyer and seller concerning the impact of FSA on the corporate assets involved in the transaction should be agreed upon between the buyer and seller.

I'd strongly suggest keeping participants informed about the changes, explain the need to have all employees under one plan, and the steps being taken to accomplish that. Explain that while both organizations maintained FSAs, the anniversary dates and other provisions that will change to transition the two plans into one plan.

Mention the need to also meet IRS requirements, and the desire of the new parent company to assure that while employees must be under one plan, the company is taking every step possible to avoid participant employees from taking a financial hit in the process.

Keeping employees informed will go a long way in making the transition smoother and may keep disgruntled employees from having an ax to grind or any legal legs to stand on if they try to influence others or file complaints, etc.