Chapter 59

Chapter 59

VEBA Welfare Benefit Trust

lEARNING oBJECTIVES:

  • Identify key issues related to VEBAs

REVIEW:

This chapter covers VEBAs (Voluntary Employees Beneficiary Associations).A VEBA is used to provide employee benefits in the future. After discussing advantages and disadvantages, the chapter movesto VEBA design issues and the focus ison coverage and nondiscrimination issues. The types of benefits that can be provided are discussed next, followed by a section on tax implications. Taxes are considered in the following areas: taxation of employees; taxation of the VEBA; and the employer’s deduction. ERISA (Employee Retirement Income Security Act) requirements are discussed, and there is a section with three references for learning more. Finally, the chapter closes with a question and answer section.

Chapter Outline:

I.What Is It?

II.When Is It Indicated?

III.Advantages

IV.Disadvantages

V.VEBA Design Issues

A.Who Must Be Covered?

B.What Kinds of Benefits Can Be Provided?

VI.Tax Implications

A.Taxation of Employees

B.Taxation of VEBA

C.Employer’s Deduction

VII. ERISA and Other Requirements

VIII.Where Can I Find Out More About It?

IX.Questions and Answers

XChapter Endnotes

FEATURED TOPICS:

VEBA welfare benefit trusts

CFP® CERTIFICATION EXAMINATION TOPIC:

Topic 30: Other employee benefits

C. Voluntary employees’ beneficiary association (VEBA)

COMPETENCY:

Upon completion of this chapter, the student should be able to:

1.Identify key issues related to VEBAs

DISCUSSION:

  1. Discuss the types of benefits that may, and may not, be provided by a VEBA.
  2. Discuss requirements for and application of a 419(f)(6) welfare benefit trust arrangement.

KEY WORDS:

VEBA

IRC Section 501(c)(9)

Multiple-employer plan

419A(f)(6) plan

Reversion of assets

Allowed benefit

Prohibited benefits

Allocation of plan assets

Differential pricing

No fixed welfare benefit package

Nonstandard benefit triggers

QUESTIONS:

1.In addition to being set up as a trust, how may a VEBA be structured?

a.nonqualified deferred compensation plan

b.qualified retirement plan

c.partnership

  1. corporation

Chapter 59, p.419

2.What is one of the primary reasons to use a VEBA?

a.lower administration and installation expenses

b.flexibility regarding potential overfunding and reversion to the employer

c.benefit security

  1. the ability to provide benefits for as little as one employee

Chapter59, p.419

3.Which of the following are benefits that can be provided by a VEBA?

(1)life insurance

(2)vacation benefits

(3)sick and accident benefits

(4)coverage of commuting expenses

a.(1) and (3) only

b.(1), (2), and (3) only

c.(2), (3), and (4) only

  1. (1), (2), (3), and (4)

Chapter 59, p. 420

4.In order for income to be exempt from regular income tax, the VEBA must meet all the requirements of which one of the following IRC sections?

a.501 (c)(9)

b.401(k)

c.457

d.403(b)(7)

Chapter59, p. 421

ANSWERS:

  1. d
  2. c
  3. b
  4. a