COBRA and Controlled Groups

[Miner88]

Any ideas on the following scenario would be greatly appreciated!

Company B is a wholly-owned subsidiary of Company A. A and B each maintain their own health and welfare plans. Company A has been selling off the businesses/assets of Company B over the past few months. Eventually, all of the busiensses/assets of Company B will be sold off and only a few employees will remain with Company B to wind down its affairs. All of the employees who went with the sold businesses will get coverage under their new employers' plans. So, my questions relate to those employees who are left winding down the business of Company B.

1. I believe the COBRA rules require that Company A provide COBRA coverage for the remaining employees once their coverage is terminated under Company B's plans (since their is still coverage under the "controlled group"). Is that correct?

2. If Company A is required to provide the COBRA coverage, must it provide only the plan options that were similar to what Company B offered its employees (e.g. PPO to PPO coverage) or must it give the former Company B employees the option to enroll in any of Company A's plan options (e.g. PPO, HMO, HRA, etc.)?

3. Any thoughts on how healthcare FSAs should be handled?

Thanks in advance for your comments!

[J Simmons]

1. I believe the COBRA rules require that Company A provide COBRA coverage for the remaining employees once their coverage is terminated under Company B's plans (since their is still coverage under the "controlled group"). Is that correct?

Yes.

2. If Company A is required to provide the COBRA coverage, must it provide only the plan options that were similar to what Company B offered its employees (e.g. PPO to PPO coverage) or must it give the former Company B employees the option to enroll in any of Company A's plan options (e.g. PPO, HMO, HRA, etc.)?

Since the Company B plan is no longer offered, but the Company A plan is, I would think you have to offer Company A plan to these COBRA continuees. The Company A plan is the only plan yet being offered by the 'ER' (i.e., the remnant of the controlled group).

3. Any thoughts on how healthcare FSAs should be handled?

If Company A allows its EEs health flex accounts, then I would think you'd treate the health flex accounts of these individuals the same as you would any COBRA continuees where there is a continued flex account plan of the ER.

[Miner88]

Thanks for your reply John. Any thoughts on how the COBRA subsidy would work? Can Company A reduce its payroll taxes for the subsidies it has paid out for Company B employees even though they were never on Company A's payroll? If not, then how would the subsidies be recouped since Company B is no longer paying payroll taxes?