Section 125 Cafeteria Plans in Minnesota
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Minnesota Department of Employment
and Economic Development
Senior Loan Officer
Samantha.dimaggio@state.mn.us
651.259.7426
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Minnesota Law
Minnesota Law
Beginning July 1, 2009, Minnesota law requires
employers with 11 or more full-time equivalent
employees and DO NOT OFFER HEALTH
INSURANCE BENEFITS to their employees to establish
and maintain a Section 125 “Cafeteria”, Premium-Only-
Plan (POP) to allow their employees to purchase
individual market or employer-based health coverage
with pre-tax dollars.
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Section 125 plan
Section 125 plan
The term “Section 125 Plan” refers to Section 125 of
the United States Internal Revenue Code.
This section of the tax code establishes rules for
employers that offer employees a choice between
taxable and non-taxable benefits including, but not
limited to, health insurance coverage.
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Cafeteria Plan
A Cafeteria Plan is an employee benefit program
designed to take advantage of Section 125 of the
Internal Revenue Code.
A Cafeteria Plan allows employees to pay certain
qualified expenses (such as health insurance premiums)
on a pre-tax basis, thereby reducing their total taxable
income and increasing their spendable/take-home
income.
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Benefit for Employee
Benefit for Employee
Participating in a cafeteria plan reduces an employee's
taxable salary and increases the percentage of their take-
home pay, thus increasing their spendable income
◦
The ability to pay for coverage with pre-tax earnings saves
employees a significant amount of money compared to paying for
health insurance with after-tax dollars. The savings are from 30%
to 50%.
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Benefit for Employer
Benefit for Employer
Employers also save money on payroll taxes
◦
They pay less for Medicare and Social Security when
employees have money withheld from their
paychecks to pay for health coverage through a
Section 125 plan.
Increased employee morale.
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Grants Available for Businesses
The Commissioner of Employment and Economic
Development will make $350 grants available to small
employers (2 to 50 employees in Minnesota) that establish
Section 125 Premium-Only-Plans (POP).
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The grant will help to offset some of the cost of
establishing the plan.
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http://www.deed.state.mn.us/bizdev/HealthInsSection125
Plans.
htm
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Employers may Opt-Out of this requirement by
certifying to the Commissioner of Commerce that
they have received education and information on
the advantages of Section 125 Plans.
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http://www.commerce.state.mn.us/Section125/Sectio
n125.html
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Employees not interested
●
Administrative costs
●
Compliance issues
●
Need more information and technical assistance
●
Other
Employers may Opt-Out
Employers may Opt-Out
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Frequently Asked Questions
Q: Is a Section 125 Plan handled like a Health Savings
Account (HSA) or a Flexible Spending Account (FSA)?
◦
A: Yes and No
Yes: The money is held back by the employer on a pre-tax
basis like an HSA and FSA.
No: The employee does not pay the health insurance bills and
submit the paperwork for reimbursement.
◦
The Section 125 Plan is a Premium-Only-Plan (POP).
The employer holds the money and pays the premium directly
to the insurance company.
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Frequently Asked Questions
Q: As an employer, why would I want to offer a Section
125 Plan to my employees?
◦
A 1: You don’t have to if you already offer health insurance.
◦
A 2: If you don’t offer health insurance you can elect to set up a
Section 125 Plan by contacting a insurance agent or broker, also
known as a Third Party Administrator (TPA). The TPA will bring
information to you and your employees and help you get started
if you decide to do it. They will also show your employees a
wide range of health insurance options. The business has no
commitment and little or no out-of-pocket expense setting up a
Section 125 Plan.
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Frequently Asked Questions
How do I qualify for the $350 grant from DEED?
◦
You qualify for the grant if you:
have not offered health insurance to employees through a
group health insurance plan or through a self-insured plan
in the last 12 months prior to applying for grant funding.
have established a Section 125 Plan within 90 days prior to
applying for grant funding and must not have offered a
Section 125 Plan to employees for at least a nine-month
period prior to the establishment of the Section 125 Plan.
certify that you have established a section 125 plan that
meets the requirement of the legislation.
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Frequently Asked Questions
What does the business need to do to get the $350 Grant
from DEED?
◦
Submit the Grant Application along with a copy of their flexible
benefit insurance plan description/summary.
(
http://www.deed.state.mn.us/bizdev/PDFs/Section125GrantAp
plicationForm.pdf
)
◦
Once it’s received the business will get a confirmation email along
with a copy of the Grant Contract.
◦
The business will complete the contract and send it back to
DEED.
◦
It get’s processed and the business will receive the grant to assist
with office expenses.
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Frequently Asked Questions
Does the employee have to re-apply for insurance if
they change jobs?
◦
A:
The Section 125 Plans are PORTABLE.
The plan belongs to the employee and, if the new employer
does not offer health insurance, the employee can ask the new
employer to have the premiums taken out pre-tax.
If unemployed, the employee may continue to pay the full
premium until new employment is found and claim the
premiums on their taxes at the end of the year.
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Insurance Companies
Blue Cross & Blue Shield of Minnesota:
www.bluecrossmn.com
HealthPartners, Inc:
www.healthpartners.com
Medica Insurance Company:
www.medica.com
PreferredOne Insurance Company:
www.preferredone.com
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Section 125 Additional Contact Information
Section 125 Additional Contact Information
Contact the Minnesota Department of Health:
Email questions to:
health.reform@state.mn.us
Contact the Minnesota Department of Commerce for
more information:
www.commerce.state.mn.us/
and
search:
Section 125
Minnesota Session Laws - 2010, 1st
Minnesota Session Laws - 2010, 1st
Special Session
Special Session
: Article 25, Section 4
Section 125 Plans. The remaining balance
from the Laws 2008, chapter 358, article 5,
section 4, subdivision 3, appropriation for
Section 125 Plan Employer Incentives is
canceled.
Program Outcomes
Program Outcomes
Six Businesses received the Section 125 Grant
◦
Types of Businesses:
Attorney’s Office (I)
Manufacturer (2)
Accounting Firms (2)
Food Service Industry(1)
Learn about Section 125 Cafeteria Plans in Minnesota, how they benefit both employees and employers, and the requirement for employers under Minnesota law to offer such plans. Discover how these plans allow employees to purchase health coverage with pre-tax dollars, reduce taxable income, and increase take-home pay. Employers can save on payroll taxes and boost employee morale by providing this benefit. Grants are also available for small businesses in Minnesota that establish Section 125 Plans.
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Presentation Transcript
Samantha DiMaggio Minnesota Department of Employment and Economic Development Senior Loan Officer Samantha.dimaggio@state.mn.us 651.259.7426
Minnesota Law Beginning July 1, 2009, Minnesota law requires employers with 11 or more full-time equivalent employees and DO NOT OFFER HEALTH INSURANCE BENEFITS to their employees to establish and maintain a Section 125 Cafeteria , Premium-Only- Plan (POP) to allow their employees to purchase individual market or employer-based health coverage with pre-tax dollars. 2 2 2
Section 125 plan The term Section 125 Plan refers to Section 125 of the United States Internal Revenue Code. This section of the tax code establishes rules for employers that offer employees a choice between taxable and non-taxable benefits including, but not limited to, health insurance coverage. 3 3 3
Cafeteria Plan A Cafeteria Plan is an employee benefit program designed to take advantage of Section 125 of the Internal Revenue Code. A Cafeteria Plan allows employees to pay certain qualified expenses (such as health insurance premiums) on a pre-tax basis, thereby reducing their total taxable income and increasing their spendable/take-home income. 4
Benefit for Employee Participating in a cafeteria plan reduces an employee's taxable salary and increases the percentage of their take- home pay, thus increasing their spendable income The ability to pay for coverage with pre-tax earnings saves employees a significant amount of money compared to paying for health insurance with after-tax dollars. The savings are from 30% to 50%. 5 5 5
Benefit for Employer Employers also save money on payroll taxes They pay less for Medicare and Social Security when employees have money withheld from their paychecks to pay for health coverage through a Section 125 plan. Increased employee morale. 6 6 6
Grants Available for Businesses The Commissioner of Employment and Economic Development will make $350 grants available to small employers (2 to 50 employees in Minnesota) that establish Section 125 Premium-Only-Plans (POP). The grant will help to offset some of the cost of establishing the plan. http://www.deed.state.mn.us/bizdev/HealthInsSection125 Plans.htm 7 7 7
Employers may Opt-Out Employers may Opt-Out of this requirement by certifying to the Commissioner of Commerce that they have received education and information on the advantages of Section 125 Plans. http://www.commerce.state.mn.us/Section125/Sectio n125.html Employees not interested Administrative costs Compliance issues Need more information and technical assistance Other 8 8 8
Frequently Asked Questions Q: Is a Section 125 Plan handled like a Health Savings Account (HSA) or a Flexible Spending Account (FSA)? A: Yes and No Yes: The money is held back by the employer on a pre-tax basis like an HSA and FSA. No: The employee does not pay the health insurance bills and submit the paperwork for reimbursement. The Section 125 Plan is a Premium-Only-Plan (POP). The employer holds the money and pays the premium directly to the insurance company. 9 9
Frequently Asked Questions Q: As an employer, why would I want to offer a Section 125 Plan to my employees? A 1: You don t have to if you already offer health insurance. A 2: If you don t offer health insurance you can elect to set up a Section 125 Plan by contacting a insurance agent or broker, also known as a Third Party Administrator (TPA). The TPA will bring information to you and your employees and help you get started if you decide to do it. They will also show your employees a wide range of health insurance options. The business has no commitment and little or no out-of-pocket expense setting up a Section 125 Plan. 10 10
Frequently Asked Questions How do I qualify for the $350 grant from DEED? You qualify for the grant if you: have not offered health insurance to employees through a group health insurance plan or through a self-insured plan in the last 12 months prior to applying for grant funding. have established a Section 125 Plan within 90 days prior to applying for grant funding and must not have offered a Section 125 Plan to employees for at least a nine-month period prior to the establishment of the Section 125 Plan. certify that you have established a section 125 plan that meets the requirement of the legislation. 11
Frequently Asked Questions What does the business need to do to get the $350 Grant from DEED? Submit the Grant Application along with a copy of their flexible benefit insurance plan description/summary. (http://www.deed.state.mn.us/bizdev/PDFs/Section125GrantAp plicationForm.pdf) Once it s received the business will get a confirmation email along with a copy of the Grant Contract. The business will complete the contract and send it back to DEED. It get s processed and the business will receive the grant to assist with office expenses. 12
Frequently Asked Questions Does the employee have to re-apply for insurance if they change jobs? A:The Section 125 Plans are PORTABLE. The plan belongs to the employee and, if the new employer does not offer health insurance, the employee can ask the new employer to have the premiums taken out pre-tax. If unemployed, the employee may continue to pay the full premium until new employment is found and claim the premiums on their taxes at the end of the year. 13
Insurance Companies Blue Cross & Blue Shield of Minnesota: www.bluecrossmn.com HealthPartners, Inc: www.healthpartners.com Medica Insurance Company: www.medica.com PreferredOne Insurance Company: www.preferredone.com 14
Section 125 Additional Contact Information Contact the Minnesota Department of Health: Email questions to: health.reform@state.mn.us Contact the Minnesota Department of Commerce for more information: www.commerce.state.mn.us/ and search: Section 125 15 15 15
Minnesota Session Laws - 2010, 1st Special Session: Article 25, Section 4 Section 125 Plans. The remaining balance from the Laws 2008, chapter 358, article 5, section 4, subdivision 3, appropriation for Section 125 Plan Employer Incentives is canceled.
Program Outcomes Six Businesses received the Section 125 Grant Types of Businesses: Attorney s Office (I) Manufacturer (2) Accounting Firms (2) Food Service Industry(1)
