Re: The takeover of a small company - does the Cafeteria Plan need to

[Guest K Wermager]

I am a TPA. One of our clients was taken over by a larger parent company. The Flex plan only affects the client. Does their plan need to be restated to be in compliance?

[SLuskin]

This is a good question. Doesn't the parent company have to offer flex to everyone, or can they just categorize your client separately - for valid business reasons? We are having lots of our small and medium size client being bought, and in each case, we have terminated the plan. We have also lost the clients, as we cannot administer plans as large as those of the parent companies.

[Guest Deborah Grace]

Whether there needs to be a plan amendment may depend on how the deal was structured.

If the corporation that sponsors the plan became a subsidiary of another company, then the plan does not have to be amended since there is no new plan sponsor. Of course, someone should read the definition of employer and eligible employee to make sure that the new owners employees are not automatically included in the plan.

If assets were bought and employees transferred then the issues are very different, and the plan should be adopted by the new employer. The purchase agreement may have addressed this issue.