The interim final regulations provide that a plan will not lose its grandfathered status if, for a bona fide employment-based reason, employees are transferred from one grandfathered plan to another, even if the transferred employees would recognize a reduction in benefits or a higher cost under the new plan. The first of the new FAQs includes a list of five situations that would be considered bona fide employment-based reasons. The non-exhaustive list includes the following situations:
- When a benefit package is being eliminated because the issuer is exiting the market
- When a benefit package is being eliminated because the issuer no longer offers the product to the employer (for example, because the employer no longer satisfies the issuer’s minimum participation requirement)
- When low or declining participation by plan participants in the benefit package makes it impractical for the plan sponsor to continue to offer the benefit package
- When a benefit package is eliminated from a multiemployer plan as agreed on as part of the collective bargaining process
- When a benefit package is eliminated for any reason and multiple benefit packages covering a significant portion of other employees remain available to the employees being transferred
If an employer transferred employees from one grandfathered plan to another pursuant to one of the situations listed above, the guidance provides that the transferee plan would retain its grandfathered status.