Section 125 Plans:

Section 125 Pre-Tax Plans

Section 125 Plans, also known as Cafeteria Plans, came about through Congress in 1978 and are named after their Internal Revenue Code. Such plans provide an employee benefit plan under which the employee makes an irrevocable decision to forego a portion of future income in exchange for receiving future benefits not subject to income tax at reception date. Essentially, Section 125 plans are created using pre-tax dollars, enabling the employee’s dollars to stretch farther. The employer deducts the cost of the employee’s future benefits from present income as a business expense.

These Plans Usually Provide Three Options:

  • Premium Conversion – employee contributes a proportionate share of the family health care costs with pre-tax dollars.
  • Medical Reimbursement Account – employee is able to use a Salary Reduction Plan to pay with dollars on a pre-tax basis for medical expenses not covered by insurance; a separate medical reimbursement account is established for each employee.
  • Dependent Care Reimbursement Account – employee is able to use a salary reduction plan to pay with dollars on a pre-tax basis for dependent care expenses.

Section 125 pre-tax plans offer an opportunity for employers to save on their health insurance costs. However, implementing and administering the plan can be challenging:

  • According to the IRS, 93% of all existing plans are out of compliance.
  • Fines can include disqualification of all tax savings to employer (approx. 7.65%) and employee (approx. 23%) going back 5 years.

What is HIPAA?

HIPAA stands for the Health Insurance Portability and Accountability Act of 1996. It is a federal law written with the intent to provide improved portability and continuity of health insurance coverage. (While the law applies to the health plans of most employers, certain non-federal governmental self-funded plans are allowed to opt out of most of the HIPAA provisions.)

In brief, the law:

  • Places limitations on the pre-existing medical condition exclusion clauses health plans can include in their contracts;
  • Guarantees enrollment to individuals if certain conditions are met, and stipulates they cannot be charged more for benefits offered by a health plan, regardless of health status;
  • Under certain circumstances requires health insurance companies to offer individual insurance on a guaranteed basis once an individual exhausts their COBRA coverage;
  • Provides new rights to employees, allowing them to enroll in the health coverage of their employer if they have lost other coverage, or if they acquire a new dependent; and
  • Provides credit to individuals for prior health coverage and requires health plans to furnish participants with Certificates of Creditable coverage.

HIPAA preserves the right of the individual states to regulate health insurance, including their authority to provide greater protections than those that HIPAA offers.

Note: HIPAA is particularly important in your decision whether or not to elect COBRA coverage because it may affect when other coverage would become available to you and the types of other coverage available to you, including the extent to which coverage can be restricted under a “pre-existing condition exclusion.”
For more information from the federal government on HIPAA, see the federal government’s website:

What qualifies one for a leave under FMLA?

You must be granted unpaid leave for any of the following reasons:
  1. The birth of your child or to care for your child after birth (the leave must be completed within 12 months of the birth).
  2. The placement of a child with you for adoption or foster care (the leave must be completed within 12 months of the placement).
  3. To care for your spouse, son or daughter, or parent who has a serious health condition.
  4. In the event of a serious health condition that makes you unable to perform your job.
  5. For a qualifying exigency arising out of your spouse’s, son’s, daughter’s, or parent’s being on active duty in the Armed Forces or being called up for active duty in support of a contingency operation.
  6. To care for a child, parent, or spouse who has suffered an injury or illness during military service that makes the servicemember unable to perform his or her duties (in this case, the usual 12-week FMLA period is extended to 26 weeks within a 12-month period). If you are the nearest blood relative, you may qualify for this FMLA leave even if the injured servicemember is not your child, parent, or spouse.
If you will be taking leave based on any of the above, you may be required to provide your employer with advance notice.

Family and Medical Leave Act of 1993

The federal Family and Medical Leave Act (FMLA) requires covered employers to provide up to 12 weeks of unpaid, job-protected leave to “eligible” employees for certain family and medical reasons. Certain states may have similar leave laws; however, state laws are not discussed here. For more information on state mandated leaves, contact the Human Resources Department.
For a list of the reasons that enable you to take an FMLA leave, see:
Most employers who employ 50 or more employees during 20 weeks or more of the current or preceding calendar year are required to provide FMLA benefits to their employees.

You are eligible under FMLA if you have worked for a covered employer for at least 12 months and you worked for that employer for at least 1,250 hours during the previous 12-month period.

Note: The right to return to your position or an equivalent position after an FMLA leave is subject to exceptions for certain “highly compensated” or “key” employees. These are salaried, eligible employees who are in the top 10% of highest-paid employees. To see if this affects you, check with the Human Resources Department.

Medical benefits are continued under an FMLA leave.

What is ERISA?

ERISA, the Employee Retirement Income Security Act of 1974, governs most employee benefit plans. It is administered by the U.S. Department of Labor. The law gives certain rights to employees and gives employers certain responsibilities to act on the behalf of employees.

Note: A complete list of employers or employee organizations sponsoring the plan may be obtained by a plan participant or beneficiary upon written request to the plan administrator. Also, a participant or beneficiary may request in writing to the plan administrator whether a particular employer is a sponsor, and if so, the employer’s address.

The Plan Sponsor reserves the right to amend or terminate any of the benefit plans. It also reserves the right to interpret the plan language, construe uncertain terms and/or determine eligibility for plan benefits.

How long may I keep COBRA coverage?

Depending on the circumstances, the coverage may be kept for up to 18, 29, 36 months (or potentially even for life for certain retirees of bankrupt companies) under federal law — state law may expand benefits in some cases.


The following chart shows the length of coverage under federal COBRA rules depending on whether the individual is the employee or spouse or child of the employee:


Employee / Former Employee:
QUALIFYING EVENT DURATION OF COBRA COVERAGE
Reduction in Hours 18 months
Termination of Employment* 18 months
Bankruptcy of Former Employer (for Retiree) For life (subject to decision of the Bankruptcy Court)
Disabled as determined by the Social Security Administration on or before 60 days after Qualifying Event Date*** Up to 29 months if still disabled


Spouse of Employee / Former Employee:
QUALIFYING EVENT DURATION OF COBRA COVERAGE
Death of Spouse (i.e., the employee) 36 months.
Termination of Employment of Spouse (i.e., the employee)* 18 months.
Divorce or Legal Separation 36 months.
Spouse (i.e., the employee) Becomes Entitled to Medicare (if prior to experiencing a Qualifying Event that is the termination, or reduction in hours, of employment) 36 months from spouse’s date of Medicare entitlement or, if longer, 18 months from the spouse’s Qualifying Event date (29 months if there is a disability extension).
Spouse of Retiree of Bankrupt Former Employer 36 months beyond the life of the retiree (subject to decision of the Bankruptcy Court).
Second Qualifying Event** 36 months.
Disabled as determined by the Social Security Administration on or before 60 days after Qualifying Event Date*** Up to 29 months if still disabled


Dependent Child of Employee / Former Employee:
QUALIFYING EVENT DURATION OF COBRA COVERAGE
Death of Parent (i.e., the employee) 36 months.
Termination of Employment of Parent (i.e., the employee) * 18 months.
Reduction in Hours of Employment of Parent (i.e., the employee) 36 months.
Parent (i.e., the employee) Becomes Entitled to Medicare (if prior to experiencing a Qualifying Event that is the termination, or reduction in hours, of employment) 36 months from parent’s date of Medicare entitlement or, if longer, 18 months from the parent’s Qualifying Event date (29 months if there is a disability extension).
Child of Retiree of Bankrupt Former Employer 36 months beyond the life of the retiree (subject to decision of the Bankruptcy Court).
Second Qualifying Event** 36 months.
Divorce or Legal Separation of Parents 36 months.
Dependent Child Ceases to be Eligible Under the Group Health Plan 36 months.
Disabled as determined by the Social Security Administration on or before 60 days after Qualifying Event Date*** Up to 29 months if still disabled.



* The law does not require that COBRA coverage be made available if an employee is terminated for “gross misconduct.”

** If a spouse of dependent child has already started 18 months of COBRA continuation coverage when an event that would allow 36 months occurs, the maximum duration will increase to 36 months. In no case may the total amount of continued coverage be more than 36 months. Medicare entitlement is not considered a second Qualifying Event unless it would serve as a first Qualifying Event (i.e., would result in loss of coverage under the group health plan), which is not common.

*** If a Qualified Beneficiary is eligible for the extension to 29 months due to disability, the other family members on COBRA are also eligible for the same extension. Please note that you must notify the plan administrator within 60 days of the determination of your disability status by the Social Security Administration.

What are the Qualifying Events that make one eligible for COBRA?

For Employee / Former Employee:
  • Reduction in your hours of employment or the termination of your employment (for reasons other than gross misconduct on your part); and
  • Or if you are a retiree and your employer has filed for Chapter 11 reorganization.

Note: Since 2000, reduction in hours followed by an increase in employee contribution has also been deemed a qualifying event to allow COBRA coverage to be taken. At the same time retiree coverage under a bankruptcy has been amended to include a substantial elimination of coverage within 12 months before or after the date bankruptcy proceedings began.

For Spouse of Employee / Former Employee:

  1. The death of your spouse.
  2. A termination of your spouse’s employment (for reasons other than gross misconduct), or reduction in your spouse’s hours of employment.
  3. Divorce or legal separation from your spouse.
  4. Your spouse becomes entitled to Medicare benefits (if loss in coverage occurs).
  5. Your spouse is a retiree and your spouse’s employer files for Chapter 11 reorganization.

For Dependent Child of Employee / Former Employee:

  1. The death of a parent.
  2. The termination of a parent’s employment (for reasons other than gross misconduct) or reduction in a parent’s hours of employment.
  3. Parent’s divorce or legal separation.
  4. A parent becomes entitled to Medicare benefits and would lose group coverage (if loss in coverage occurs).
  5. The dependent ceases to be a “dependent child” under the group health plan.
  6. The parent is a retiree and the parent’s employer files for Chapter 11 reorganization.

Note: If, as an employee, you go out on a qualified leave under the Family and Medical Leave Act of 1993, special rules apply. The COBRA Qualifying Event will not start until you notify the company, during the leave period, that you will not be coming back or if you do not return at the end of the leave period.

Under the law, the employee or a family member has the responsibility to inform the Human Resource Department of your employer (or former employer) of a divorce, legal separation, or a child losing dependent status under the group health plan within 60 days of this Qualifying Event. There is also a60-day notification requirement for informing the Plan Administrator of a disability award from the Social Security Administration to qualify for the possible disability extension.

What is COBRA coverage?

COBRA is an acronym for the federal law, the Consolidated Omnibus Budget Reconciliation Act of 1985. It applies to most businesses that have twenty or more employees on an average business day for that company in the prior calendar year. (Some states have similar laws for smaller employers.)

The law is designed to allow eligible employees and/or their covered dependents to continue certain health-related group benefits when coverage is lost for a number of reasons.

Note: The law does not require that COBRA coverage be made available if an employee is terminated for “gross misconduct.”

To see when COBRA coverage is available, see the answer to the question:

What are the Qualifying Events that make one eligible for COBRA?

Depending on the circumstances, the coverage may be kept for up to 18, 29 or36 months (or potentially even for life for certain retirees of bankrupt companies) under federal law; state law may expand benefits in some cases.

For more detailed information on how long COBRA may be kept, see the answer to the question:

How long may I keep COBRA coverage?

Separation / Divorce

When your relationship reaches a point where it seems necessary to part ways, you might find that divorce is the only viable option. Or, you might decide on a separation, which gives you both the chance to assess your feelings and expectations concerning the relationship. This section can help you make more informed decisions that can minimize the stress on everybody involved — you, your spouse, and your children and family members.

To Do List

  • Remove from Benefits
  • Review Beneficiaries on Policies
  • Change Emergency Contacts

Having a baby

Congratulations! This is an exciting and rewarding time for you! And while it will pose a lot of new challenges and questions, being prepared can help ease many of the doubts and concerns common to new parents and allow you to enjoy the million precious moments as they occur. This section will take you through the information you’ll need to welcome a new addition to your family.

Important! When your new baby arrives, you may have a limited time to enroll him or her in the benefit plans offered by your company.

To Do List

Pages (3): 1 2 3 »
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