Voluntary Employees' Beneficiary Association (VEBA)

Voluntary Employees’ Beneficiary Association (VEBA)

Definition

A Voluntary Employees’ Beneficiary Association (VEBA) is a type of tax-exempt trust established to provide benefits, such as life insurance, sickness, and accident insurance, to its members who are typically employees of a company. The VEBA is generally funded by employer contributions, and sometimes employees also contribute to it. These associations are governed by sections 501(c)(9) of the Internal Revenue Code.

Examples

1. Company-Sponsored Health Benefits: An employer establishes a VEBA to manage health benefits for its employees using pre-tax dollars. This allows the employer to offer a comprehensive health insurance package that covers major medical expenses, preventive care, and prescription drugs.
2. Life Insurance Program: An engineering firm creates a VEBA to fund life insurance policies for its employees. The trust manages the funds, pays premiums, and ensures that benefits are paid out to beneficiaries upon an employee’s death.
3. Retirement Health Benefits: A manufacturing company sets up a VEBA to provide post-retirement health benefits to its workers. This includes health insurance and other welfare benefits to ensure that retirees have adequate medical coverage.

Frequently Asked Questions (FAQs)

What are the primary benefits of establishing a VEBA?

A VEBA provides tax advantages for both employers and employees. Contributions to a VEBA are tax-deductible for the employer, and earnings on the trust’s assets accrue tax-free. Additionally, employees benefit from receiving tax-free welfare benefits.

Can employees also contribute to a VEBA?

Yes, while employer contributions are most common, employees can also make contributions to the VEBA under certain situations, depending on the plan’s structure.

What expenses can a VEBA cover?

A VEBA can cover a wide range of benefits, including medical, dental, vision care, disability income, life insurance, and accident insurance, among others.

Are there any restrictions on who can be members of a VEBA?

Generally, members of a VEBA must have an employment-related bond, which includes current employees or their dependents, retirees, and in some cases, previous employees.

Related Terms

• ERISA (Employee Retirement Income Security Act): Federal law that sets standards for most voluntarily established retirement and health plans in private industry.
• FSA (Flexible Spending Account): Tax-advantaged financial account set up through a cafeteria plan to pay for out-of-pocket healthcare costs.
• HRA (Health Reimbursement Arrangement): Employer-funded plan that reimburses employees for out-of-pocket medical expenses and individual health insurance premiums.
• 401(k) Plan: A defined-contribution plan where employees can make salary deferral contributions from their paycheck either before or after taxes.

Online References

• IRS - VEBA Overview
• Department of Labor - ERISA Information
• Healthcare.gov - Employee Benefits

Suggested Books for Further Studies

• “Employee Benefits and the New Health Care Landscape: How Private Exchanges are Bringing Choice and Consumerism to America’s Workforce” by Robert L. Clark and Melinda S. Morrill
• “Fundamentals of Employee Benefit Programs” by Employee Benefit Research Institute (EBRI)
• “Employee Benefits Law: Qualification and ERISA Requirements, 5th Edition” by Kathryn J. Kennedy and Paul J. Shultz
• “McCutcheon’s Church Law: VEBA’s and Retirement Income Security Coverage” by Peter J. Wosh and Randall B. Cooley

Fundamentals of VEBA: Employee Benefits Basics Quiz

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