Understanding Section 125 Cafeteria Plans in Minnesota
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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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)
