The Law @ Work

Massachusetts Employers Must Revise Their Section 125 or Flex Plan Documents

by Wendy L. Grabel

It’s time for all Massachusetts employers to (slightly) revise their “cafeteria plan” documents.  These employer plans can no longer allow MA Health Connector plan enrollees to make salary deductions towards their health plan premiums.

Failure to do so could jeopardize the tax advantages of the employers’ “cafeteria,” §125, and flexible spending plans.

A bit of background:  Previously, Massachusetts  employers were required to:

  • maintain an Internal Revenue Code §125 “cafeteria plan” for employees who were ineligible for the Employer’s own medical plan;
  • allow these employees to make pre-tax salary deductions to the cafeteria plan; and
  • pay for their Health Connector plan premiums.

Punitive and administrative consequences to the employer followed any failure to comply.

But the Federal Affordable Care Act (ACA) prohibits this procedure.  And so the Massachusetts Health Connector Administration announced that it would no longer enforce any of the former requirements.  Health Connector Administrative Bulletin 03-13 (10/28/2013).

In order for Massachusetts employers to conform to both the ACA and the cafeteria plan regulations, they must revise their written plan documents, booklets, “summary plan descriptions,” and handbooks, to remove any reference to the former Health Connector procedures, or to correctly reflect their end date.

Calendar-year Employer plans were required to discontinue the former procedures as of January 1, 2014.  Fiscal-year Employer plans must do so beginning with the first “plan year” that starts during calendar 2014.  For example, if a Massachusetts employer maintains a Flexible Spending Plan that begins each November 1, it must discontinue the Health Connector benefit as of November 1, 2014.

Federal regulations demand pristine plan documents for Flex Plans and all other §125 “cafeteria plan” benefits.  If the written plan documents and booklets do not fully and accurately describe the benefits, the tax benefits of those plans are jeopardized.

Massachusetts employers should review all their plan documents to remove or correct the references to the former Health Connector benefits.  The targeted language may be found in the Employers’ formal plan documents, “summary plan descriptions,” booklets, or Employee handbooks, and may be found in sections concerning “cafeteria plans,” §125 plans, or even the Employers’ Flexible Spending Plans.

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