June 5, 2007

Massachusetts Employers: A New Cafeteria Plan Requirement

As part of the Commonwealth of Massachusetts’ effort to provide universal health coverage to all residents, the State is requiring employers to offer its employees an IRC Section 125 (cafeteria) plan, effective July 1, 2007.  This rule applies to all employers employing 11 or more full-time equivalent employees in the Commonwealth.  It applies to employers whether they offer insured health plans, self-funded health plans, or no health insurance plan at all.  Failure to comply with the cafeteria plan requirement may cause the employer to be subject to the Free Rider Surcharge.

The Commonwealth has designed a model cafeteria plan and related tool kit that employers can use to adopt a cafeteria plan. 

An employer can use its existing cafeteria plan to satisfy this obligation.  If an employer currently sponsors a cafeteria plan, it should make certain that the plan is available to all employees, regularly working 64 hours or more per month, and it should make certain that the waiting period under the plan is no longer than two months.  Employees who can be excluded from participating in a cafeteria plan are:

  • Employees under age 18;
  • Temporary employees;
  • Part-time employees working less than 64 hours per month;
  • Wait staff, service employees, or service bartenders who earn less than $400 in monthly payroll wages;
  • Student employees who are employed as interns or as cooperative education student workers; and
  • Seasonal employees who are international workers with either a U.S. J-1 student visa, or a US H2B visa, and who are enrolled in travel health insurance.

If the employer’s existing cafeteria plan does not meet the above criteria, it should be amended prior to July 1, 2007.  Alternatively, the employer could adopt the model plan found at the above-referenced website, for the individuals who must be offered coverage under a plan, but who are not currently eligible.

Information should be forthcoming about how and where to file the plan documents with the Massachusetts Health Connector.  For more information, see Focus on Section 125 Plan FAQs from the Connector.


The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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