Employer Dissolving

[waid10]

I work in HR at an organization that is a for-profit joint venture between two hospitals. My employer is going to be dissolved. Many of our employees will receive employment at the two hospitals, but some will not have jobs. My question is this: we have an FSA. How is this handled? My employer is not being acquired. It is going to be terminated/dissolved. I am not sure that the two hospitals are considered successor employers. How do we handle employee FSA accounts where money has been set aside but unused for claims?

Thanks.

[SLuskin]

I work in HR at an organization that is a for-profit joint venture between two hospitals. My employer is going to be dissolved. Many of our employees will receive employment at the two hospitals, but some will not have jobs. My question is this: we have an FSA. How is this handled? My employer is not being acquired. It is going to be terminated/dissolved. I am not sure that the two hospitals are considered successor employers. How do we handle employee FSA accounts where money has been set aside but unused for claims?

Thanks.

If the employer is dissolved, and not acquired, then the plan terminates. Employees need to be told the final date that they can submit claims.

If there are funds remaining, they can be distributed to all plan participants on an equal and taxable basis.

The employer may also choose to use those funds to reimburse itself for the plan administration expenses.

[leevena]

SLuskin...quick question. If the employer does decide to distribute do they distribute based on some type of formula based on employee contributions or is it just divided evenly between all the participants?

Thanks.

[waid10]

SLuskin...quick question. If the employer does decide to distribute do they distribute based on some type of formula based on employee contributions or is it just divided evenly between all the participants?

Thanks.

I have the same question as leevena. Also, is there support in the regs that this is the proper way to handle unused FSA money when the plan is terminated?

[Chaz]

Are the employees who are staying able to join the hospitals' FSAs?

[waid10]

Are the employees who are staying able to join the hospitals' FSAs?

Yes, I believe they will be able to do that.

[Chaz]

This is off the top of my head without doing any research but I think a better approach might be to consider the dissolution instead as a sale of assets (what is happening to the assets of the JV anyway?) and carry over the continuing employees' elections and balances to the hospitals where they are going. The IRS might not look favorably on permitting these employees to make new elections mid-year. Terminating employees would then have to be offered to continue their health FSA in accordance with COBRA.

Again, these are just my thoughts without looking at it in-depth. You should definitely ask benefits counsel to look into this.

[waid10]

This is off the top of my head without doing any research but I think a better approach might be to consider the dissolution instead as a sale of assets (what is happening to the assets of the JV anyway?) and carry over the continuing employees' elections and balances to the hospitals where they are going. The IRS might not look favorably on permitting these employees to make new elections mid-year. Terminating employees would then have to be offered to continue their health FSA in accordance with COBRA.

Again, these are just my thoughts without looking at it in-depth. You should definitely ask benefits counsel to look into this.

But how would COBRA work? The JV will cease to exist. So there won't be any plan remaining.

[Chaz]

The same way that it would work in any sale of assets transaction: The successor employer (i.e., a hospital) would provide coverage under its plan.

How is medical, dental, etc. coverage being handled?

[waid10]

The same way that it would work in any sale of assets transaction: The successor employer (i.e., a hospital) would provide coverage under its plan.

How is medical, dental, etc. coverage being handled?

Since there are two employers taking some of the employees, would they just negotiate which would assume the COBRA responsibility? Or could they share it?

[Chaz]

This is something that you want to speak with your benefits counsel about. I don't know enough of the facts to provide an informed opinion.

[Guest morris]

I think Chaz is on the right track. What is happening to the JV assets? Surely the hospitals are sharing/transferring them, which I think means they also share the winddown of the FSA. They jointly share the COBRA runout (liability).

[Guest sierrashirly78]

Your limited health care FSA reimburses only for certain expenses, including:

Dental care and orthodontia, such as fillings, X-rays, braces, caps and mouth guards

Vision care, including eyeglasses, contact lenses, solutions and supplies and LASIK eye surgery

Preventive care not covered under your health plan, such as vaccines, flu shots and diagnostic tests

____________________________________________

Auroinfo

[Guest odessa477]

Your plan is likely to be dissolved so you better file for a claim before the due date.

[SLuskin]

SLuskin...quick question. If the employer does decide to distribute do they distribute based on some type of formula based on employee contributions or is it just divided evenly between all the participants?

Thanks.

HI, you can't give the money back based on contributions or claims. You could give the medical FSA money back equally to those who participated in the medical FSA and the daycare money back equally to those who participated in the DCAP. It is taxable.

[bcspace]

I am having a similar situation now; a client company is being dissolved Oct 16th but the plan year normally ended Dec 31st. What actually happens with regards to the end of the plan year? Is it now the date of dissolution? What about employees with unused funds? For example, an employee was scheduled to incur a Medical FSA expense after the date of company dissolution. The EE's were given very short notice the company was closing down. Are they pretty much out of luck in terms of use-it or lose-it?