Connecticut Law Requires Employers to Adopt Cafeteria Plans

In 2007 Connecticut adopted a law requiring employers to adopt cafeteria plans if their employees are required to pay a portion of the health insurance premium for employer-sponsored health insurance through payroll deduction.  Connecticut wanted to make sure that employees would have the opportunity to pay such premiums on a pre-tax basis.  This law did not get much attention.  Maybe that is due to the fact that it was buried in the middle of a public act that was intended to expand access to public health insurance by making a number of changes to the HUSKY program.

Utilizing a cafeteria plan to make pre-tax payroll deductions as the method for paying the employee’s share of the premium is a common practice, so most companies are likely complying with the law. Many companies, however, still  require employees to pay their portion of health insurance premiums with after-tax dollars.  If this describes your business practice you should adopt a cafeteria plan and give your employees the opportunity to pay their share of the premium with pre-tax dollars.  If you know that your business is not utilizing a cafeteria plan but you are reflecting your employees premium payments as pre-tax, you should adopt a cafeteria plan now.  While Connecticut law does not provide for a remedy for an employer’s failure to adopt a cafeteria plan,  the employee who is affected by the improper payroll deduction may have a direct claim against the employer for the unnecessary income tax liability incurred.

It’s interesting that Connecticut requires employers to let employees pay for health care with pre-tax dollars while the federal government has taken a somewhat different view.  In September 2013 the Internal Revenue Service issued guidance making it a violation of the Affordable Care Act for employers to reimburse employees for insurance premiums they pay for non-employer sponsored health insurance.  From the early 1960's, until this guidance was issued, these types of insurance reimbursements were not taxable to the employee.

The take away:  if you are a Connecticut employer that sponsors a health plan with employees bearing the cost of some or all of that plan, make sure you have a cafeteria plan in place.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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