Does anyone know if all employees of a controlled group are required to be eligible to participate in a Section 125 plan which includes a flexible spending account that is adopted by only one of the entities of the group? I know they are required to be aggregated for nondiscrimination purposes, but can we limit participation in the plan to only the employees of the one entity? I believe that if at some time one of the other entities wanted to participate in the Sec 125 plan they would be required to formally adopt the plan as a participating employer and that the employees are not automatically considered eligible to participate because they belong to a contolled group.

You can have the employees of only 1 of the companies in a controlled group elibible if there are valid business reasons. You are correct that everyone must be included for the testing.