Cobra Coverage Within Control Group

[Guest rcenturion]

Say you have 3 affiliated corporations (A, B, and C) which are considered as being within a control group under the IRS Code. They are located in separate states and maintain separate health plans. Corporations B and C file for bankruptcy and the health plans are canceled. Can the employees of the now defunct companies B and C demand Cobra coverage from company A's health plan (assuming that health plan provides coverage in the employee's state of residence)?

The IRS cobra regulations (Sec. 54.4980B-2) define an employer as a person for whom services are performed or any other person that is a member of a group defined in Section 414 of the IRS Code (i.e., a control group). This would seem to indicate that, for purposes of Cobra, company A could be considered as an employer of employees of companies B and C. Am I reading this section wrong? Does it apply only for purposes of counting the number of employees a particular company has to determine whether it is subject to federal Cobra, or does it mean that a control group company is obligated to offer cobra to employees of its affiliated companies?

[Kirk Maldonado]

I didn't think that cancellation of health insurance was a "qualifying event" that enables somebody to elect COBRA.

[Guest rcenturion]

I should clarify that the employees of the bankrupt companies are being terminated. So the loss of employment would be the qualifying event.

[Guest rmg]

About two years ago we had a similar situation - two sister companies with one going out of business and laying everyone off. We were told by our ERISA attorney that because of the common ownership the company that was still in business had to offer the COBRA continuation and so they did. I'm sorry I can't site the section: since we were paying for presumably good advice we took it without asking for the site. (By the way, I was under the impression that the attorney was not offering a choice as she often did. In other words, sometimes she would say we should do something b/c she didn't want to end up in court but that the regs were vagues but in this case she didn't think there was any leeway).

[Chaz]

In the context of a sale of assets, do the affiliated service group rules of Section 414(m) apply to determine whether a selling company is deemed to provide group health insurance for COBRA purposes (because one of its affiliates continues to provide coverage after the asset sale)?

I know that the controlled group rules of 414(b) and © apply but my reading of the COBRA regulations indicates that 414(m) does not apply. That does not seem intuitive to me and wonder if any one has looked at this.

Thanks!