Welfare Benefit and VEBAS

Key Features

  • Contributions are tax deductible
  • Growth of trust is tax exempt
  • Certain distributions are excluded from taxes
  • Pre-retirement death benefit
  • Post-retirement death benefit reserve
  • Severance pay benefit
  • Retiree medical benefit
  • Health reimbursement account benefit (collectively bargained)
  • College education benefit

A Voluntary Employees' Beneficiary Association, also known as a "Section 501(c)(9) Plan" or a "VEBA," is a plan under which employers may elect to provide future welfare benefits for employees and their beneficiaries through a welfare benefit fund which is allowed to accumulate tax-free. Sections 79, 101, 105, 419, 419A and 505 of the Internal Revenue Code impose additional limitations on welfare benefit funds.

The types of welfare benefits which may be provided through a VEBA include severance pay, life benefits, sick and accident benefits, disability benefits and other similar benefits. The Sterling Benefit Plan VEBA emphasizes the following types of benefits:

VEBAs are generally appropriate for employers who desire to provide additional benefits over and above retirement benefits to their employees (and obtain additional tax deductions for providing such benefits). More and more frequently professional corporations have adopted VEBAs as a supplement to their existing benefit programs. In addition, they are appropriate for those employers who desire to provide excellent benefits to their employees, but prefer slower vesting and benefit accrual rules than those provided under qualified retirement plans.

Although VEBA plans are subject to non-discrimination rules which require that "non-highly compensated" employees benefit under the plan at a rate comparable to the rate at which "highly compensated" employees benefit. However, such requirements are much easier to satisfy than similar requirements imposed under qualified retirement plans.

Because of administrative costs associated with this type of program, it is generally a good idea for employers with 10 or more employees who desire to make substantial contributions to the plan ($40,000 or more annually).

For further information, you may visit the following links:

VEBAPlan.com

VEBA Insurance and Investment Links