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Legal Updates

Connector Issues More Guidance on Section 125 Plan Requirements under Massachusetts Health Care Reform Law

The Connector  recently clarified several of the Section 125 Plan Requirements under the new Massachusetts Health Care Reform law (An Act Providing Access to Affordable, Quality, Accountable Health Care) (the “Act”).  Specifically, the Connector has: (1) announced a new deadline for covered employers to file their Section 125 Plans with the Connector; (2) refined how to calculate 11 or more full-time employees under the Act; and (3) supplemented the regulations with respect to which part-time employees and wait staff can be excluded from an employer’s Section 125 Plan.

In addition, the Division of Health Care Finance and Policy (DHCFP) has provided further guidance regarding the Employee Health Insurance Responsibility Disclosure (HIRD) forms.

1.         Section 125 Plans: Connector Filing Date Revised

The Connector announced  that covered employers should file copies of their Section 125 Plans with the Connector by October 1, 2007, but no earlier than September 1, 2007.  Until September 1, 2007, employers should retain a copy of the Section 125 Plan at the worksite, unless directed by the Connector to do otherwise.

The effective date for covered employers under the Section 125 Plan requirement remains July 1, 2007.  To satisfy the Connector regulations, Massachusetts employers with 11 or more employees (as defined by the regulations), must adopt and maintain a Cafeteria Plan that satisfies Internal Revenue Code Section 125 and the regulations of the Connector, by July 1, 2007.  Those who fail to do so will face the Employer Surcharge for State-Funded Health Costs with respect to employees and dependents who receive state-funded health services, commonly referred to as the “Free Rider Surcharge.”

For details regarding an Employer’s Section 125 Plan obligations, please see our recent e-alerts entitled Reminder: July 1, 2007 Compliance Deadline for Massachusetts Health Care Reform Law (at www.shpclaw.com) and Connector Clarifies Section 125 Cafeteria Plan Requirements and Other Updates from the Connector (at www.shpclaw.com).

2.         Calculating Number of Employees under the Section 125 Regulations

An employer will be considered to have 11 or more full-time employees, and thus be subject to the Section 125 Plan Requirements, if the sum of employee payroll hours from April 1, 2006 through March 31, 2007, capped at 2000 payroll hours per employee, divided by 2000 is greater than or equal to 11.  In calculating total payroll hours, the employer must include the payroll hours of all full-time, part-time, temporary, and seasonal employees employed at a Massachusetts location, regardless of whether the employees are Massachusetts residents. However, the Connector has clarified that employers may exclude from the total number of employee payroll hours in this calculation, any employees who work less than one month during the relevant time  period.  

3.         Excluded Employees under the Section 125 Requirements

A covered employer may specifically exclude from eligibility to participate in its Section 125 Plan the following classes of employees: (1) employees who are less than 18 years of age; (2) temporary employees (as defined by the regulations); (3) part-time employees working, on average, fewer than 64 hours per month; (4) employees who are considered wait staff, service employees or service bartenders (as defined in Mass. Gen. Laws ch. 149, §152A) and who earn, on average, less than $400 in monthly payroll wages; (5) student employees who are employed as interns or as cooperative education student workers; and (6) seasonal employees who are international workers with either a J-1 student visa or an H2B visa and who are also enrolled in travel health insurance.

a.         Part-time Employees

The new Connector guidance provides that employers will have made a reasonable, good faith effort with regard to the exclusion of a part-time employee from a Section 125 Plan if that employee has worked an average of 63 or fewer hours per calendar month for the 180 days immediately preceding any open or special enrollment period (i.e. employees’ gross pay roll hours during the 180 day period divided by 6.)

Employers will have made a reasonable, good faith effort with regard to exclusion of a new employee (defined as an employee whose first day of employment commences after July 1, 2007 and following the effective date of an employer’s Section 125 Plan for which the employee is eligible) under the part-time employee classification, if the employer reasonably determines that, as of the employee’s date of hire, the employee will be expected to work an average of 63 or fewer hours per calendar month during the first 180 days following commencement of employment.  An employee will be considered a new employee, so long as he/she remains employed, until the later of: (1) the 180th day following commencement of employment or (2) the date immediately preceding the first day of the next open or special enrollment period under the Section 125 Plan.

b.         Wait Staff Tip Exclusion

Under the wait staff, service employees and service bartenders exclusion, employers should not include tips when calculating whether an employee’s wages exceed $400 per month.  A tip means “a sum of money, including any amount designated by a credit card patron, a gift or a gratuity, given as an acknowledgement of any service performed by a wait staff employee, service employee or service bartender.”

4.         Employee HIRD Forms

Recent DHCFP regulations confirm that each employee of a Massachusetts employer with 11 or more full-time equivalent employees must complete an Employee HIRD Form if: (1) the employee declines to enroll in his/her employer-sponsored insurance and/or (2) if the employee declines to participate in the employer’s Section 125 Plan.  (The calculation for determining the number of full-time equivalent employees is identical to the calculation under the Fair Share Contribution requirement, i.e. if the sum of payroll hours for all employees that have worked at least one month from October 1 through September 30, capped at 2000 hours per employee, divided by 2000 is greater than or equal to 11, the employer is subject to the HIRD requirement (a “reporting employer”)

Reporting employers must collect the completed and signed HIRD forms by the earlier of 30 days after the close of the applicable open enrollment period for the employer’s health insurance plan and/or its Section 125 Plan, or September 30, 2007.  After September 30, 2007, reporting employers must collect Employee HIRD forms within 30 days of any of the following: (1) the date a new hire waives employer- sponsored health plan participation and/or Section 125 plan participation; (2) the date an employee terminates health plan participation; or (3) the date an employee waives or terminates health plan participation in conjunction with an annual open enrollment period.

A reporting employer must provide a copy of the signed Employee HIRD form to the employee and retain a copy of the HIRD form for three years.  If an employee fails to comply with the employer’s request to return the signed form, the employer must document its efforts to obtain the form.  (The new Employee HIRD Form and the relevant instructions are available at http://www.mass.gov.)

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We will continue to keep you advised of all continuing developments relative to the Act.  We strongly encourage covered employers to adopt a Section 125 Plan(s) and to file the Plan(s) with the Connector by October 1, 2007.  We are available to assist your organization with implementing a Section 125 Plan, complying with the HIRD form requirement, as well as to address any questions that you may have regarding the above or the Act in general.