Guest Article

(From the April 2, 2007 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Emergency Rules to Implement Cafeteria Plan Requirement for Massachusetts Employers

It is well known that Massachusetts' Access to Affordable, Quality, Accountable Health Care Act ("Act") requires all Massachusetts residents have health insurance beginning July 1, 2007. But the Act imposes mandates on employers, too. For example the Act requires employers with at least 11 full-time employees in Massachusetts to make a "Fair Share Contribution" unless they offer health insurance for their employees and make a "fair and reasonable premium contribution," as defined by regulation. Another lesser known mandate requires employers with at least 11 "full-time equivalent" (FTE) employees in Massachusetts to sponsor an IRC § 125 cafeteria plan so employees can pay their share of health insurance premiums on a pre-tax basis. The Massachusetts Commonwealth Health Insurance Connector Authority ("Connector") recently issued "emergency" rules to implement this latter mandate, which also is effective on July 1, 2007.

Summary of Rules

As noted, the cafeteria plan mandate applies to employers with at least 11 FTE employees in Massachusetts. According to the emergency rules, the cafeteria plan mandate applies to an employer regardless of whether the underlying medical coverage is "maintained on an insured or self-insured basis, purchased on an individual or group basis, or provided through the Connector or through another distribution channel unrelated to the Connector." However, the mandate does not apply to employers who pay the total premium cost of health insurance for all their employees.

In order to satisfy the mandate, employers must maintain their IRC § 125 cafeteria plan pursuant to a written plan document. The plan document must contain at least six specified elements, including a description of available benefits and eligibility rules. The plan document must be filed with the Connector.

The rules clarify that employers can offer IRC § 125 cafeteria plans that include only a premium conversion feature. They do not have to include flexible spending arrangements (FSAs) or non-medical benefits, such as dependent care assistance. Additionally, the rules clarify all contributions to an employer's IRC § 125 cafeteria plan can be employee salary reduction contributions; non-elective employer contributions are not required.

For More Information ...

The emergency rules are available on the Connector's Web site, at www.mass.gov/?pageID=hichomepage&&L=1&L0=Home&sid=Qhic.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Laura Morrison 202.879-5653, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2007, Deloitte.