Merger of two entities with FSA on different plan years

Hi All,

I'm looking for solutions on how to deal with FSA account balances of employees whose employer is being merged into a different entity as of 1/1/19.  The surviving entity has its own FSA, so the merged entity's FSA is being terminated effective as of the end of the CY (creating a stub year because the plan year was originally FY 6/30).  Other than amending the soon-to-be-terminated plan to provide a 2.5 month grace period, is there any other way to protect these employees from losing their account balances?  Thanks in advance.  

It''s my understanding in most M&A transactions the FSA plans are not terminated or they are transferred to the buyer so that employees are not disrupted or lose their contributions.  You may want to have the buyer review Rev. Rul 2002-32 (attached) with their counsel for the deal so that they can structure it to avoid a loss of coverage by their employees.

IRS Rev. Rul. 2002-32, 2002-23 I.R.B. 1069.pdf

is the non-surviving entity officially dead on 12/31?  just wondering if you could let the plan year run out.  i typically recommend doing short plan years in situations like these to get everything synched up before officially ending one plan.  time would obviously need to be on your side.