Beginning July 1, 2009, Minnesota employers with more than 10 full-time equivalent employees who do not offer group health insurance to employees must establish a premium only Section 125 "cafeteria" plan to allow their employees to purchase individual market or employer-based health coverage with pretax dollars.  The aim of the law is to make it possible for employees at affected companies to purchase their own health insurance coverage with pre-tax dollars. The law does not require employers to offer or contribute to health insurance benefits.  Without a Section 125 plan employees of companies without a Section 125 Plan would be buying their own health insurance with after-tax dollars. The Section 125 plan could save an employee several thousands of dollars per year in taxes. 

 

For employers there are financial benefits to establishing a Section 125 Flexible Benefit plan.  For example, employers do not pay Medicare, Social Security or unemployment insurance taxes on the amounts that employees choose to have withheld from their paychecks on a pre-tax basis. See the example below to illustrates employers and employees savings.

 

The state has set aside $200,000 in grant money to help small employers (2 to 50 employees) cover the cost of establishing a Section 125 plan. The grant amount awarded through this program is $350 per employer. To apply for the grant, contact the Department of Employment and Economic Development at 651-259-7435.

 

Click here to view information on how to adopt a Section 125 Plan

 

Although in most cases the employer will save more than the cost of the Section 125 Plan, the law does allow employers to "opt out" of this requirement to establish a Section 125 plan. Click here to view the state's Opt Out Form.