The A new law taking effect July 1, 2009 will require Minnesota employers with 11 or more current full-time equivalent employees in the state to establish and maintain a Section 125 Plan. An employer can opt out of the requirement if it sends a form to the commissioner of commerce certifying that it has received education and information on the advantages of Section 125 Plans, and checks a box stating that it is opting out of the requirement.

What is a Section 125 Plan?

Section 125 refers to a section of the federal internal revenue code.  It allows companies to give their employees the opportunity to pay for certain types of benefits on a pretax basis. Pretax benefits lower payroll-related taxes for both the employer and employees. 

Section 125 Plans are also called Cafeteria Plans because they can (but are not required to) give employees a choice between different types of benefits.  For example, an employee with young children might choose to allocate a certain amount of dollars to pay for daycare, while someone without young children might choose a different benefit.

The benefits that may be funded through a Section 125 plan are:

• Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance);


• Adoption assistance;


• Dependent care assistance;


• Group-term life insurance coverage (including costs that cannot be excluded from wages); and


• Health savings accounts (HSAs). Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services.
  

Self-employed individuals, partners, and shareholder employees of a Subchapter S corporation
who directly or indirectly own more than two percent of the company's stock are ineligible to participate.

You can read more about these plans in IRS Publication 15-B.

 


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