Termination of Plan in connectin with M&A

[Locust]

Stockholders are required to terminate health plan immediately before they sell their stock to a purchaser that is part of a controlled group. There are no other health plans with the sold company (or any member of its controlled group) after the termination.

The terminated health plan had COBRA participants.

The purchaser will provide health coverage to the employees of the sold company once the stock purchase is completed - these employees will have no gap in coverage because immediately after the health plan is terminated, they will be covered by the purchaser's health plan.

Q: Will the COBRA participants of the terminated plan be cut off and not have COBRA coverage under the purchaser's plan?

Suppose there is a gap in coverage of a full day, or a week, or a month? Does that make a difference?

[LRDG]

If the Cobra covered participants are former Stockholders who's plan will terminate immediately before the sale, the Plan is terminated and therefore no 'plan' from which to continue coverage for this class of EEs.

If the Cobra covered participants are former EEs for whom there will be replacement coverage w/no laps in coverage, Cobra coverage is required to continue as it will for their currently working/employed counterparts.This group follows the requirement that Cobra eligibles are required to be treated as they would if the qualifying event had not occurred with respect to health plan coverage.

Your situation is not specifically illustrated in the COBRA regs., however because there are 2 classes of EEs, coverage for one class being terminated, but a replacement plan provided for the non-Stockholder class of currently employed. Cobra does illustrate that former EE covered by COBRA are treated as they would if there had been no qualifying event.

http://www.dol.gov/dol/topic/health-plans/cobra.htm