The Massachusetts Health Connector and IRS Section 125 POP Plan

With all the focus on Federal Health Care Reform it’s easy to lose focus on the solutions some states are creating to take control of the issue in their respective state. Since 2006, Massachusetts has required its citizens to have health care. This landmark legislation has been praised throughout the country for being proactive and for addressing the needs of Massachusetts citizens. The embodiment of this initiative is the Massachusetts Health Connector, a service that links Massachusetts residents with the health care they need.

Massachusetts employers who have more than 11 eligible employees must create a Section 125 Plan to make health care available to their employees. If you have 11 or more employees and don’t offer a Section 125 Plan, you could be subject to a Free Rider Surcharge if your employees receive state-funded health care services. While this may seem like a burden, setting up a Section 125 plan is really a great deal for both you and your employees.

Why a Section 125 Plan is a Win-Win?

A Section 125 POP Plan is often called a Premium Only Plan or cafeteria plan, and is governed by Section 125 of the Internal Revenue Code. When benefits are offered through a Section 125 Plan, the premiums that employees pay are deducted from their pay on a pre-tax basis. That means each employee’s taxable income is lower, as is their FICA and Medicare tax contribution. For the employer, you benefit from your portion of matching contribution too. Employers also save on Federal Unemployment Tax and depending on the state or county there could also be additional tax savings.

Even if you have fewer than 11 eligible employees and aren’t required to set up a Section 125 plan, the tax-savings alone could make it worth your while!

How Do I Set Up a Section 125 Plan?

For Massachusetts Employers, the Connector has a sample document that you could review or have your attorney create a document and keep in compliance. Or you could hire a professional document administration company that will create and maintain your Section 125 Plan with ease. They can provide signature-ready plan documents customized for you and your needs, and in full compliance with IRS rules, in as little as fifteen minutes