An Introduction to VEBA Plans

VEBA plan is the Voluntary Employees Beneficiary Association Plan. It is a trust fund that must be used to provide a variety of health benefits for employees and their dependants. Authorized by the United States tax codes, VEBA plans are funded using unused sick leaves of the employees involved. They provide an alternative to the employer-based health insurance plans. The plans can be customized in a number of ways, and they contain several tax advantages for employers, and employees alike. However, the plans must also follow certain rules, otherwise, their tax advantages will be revoked.

VEBA Plan Requirements

Every VEBA must be a voluntarely formed association of employees. Those employees must have a common employment-based bond. A common bond can be a common employer, a common bargaining agreement, a membership in the same labor union or being in the same line of business in the same geographical area.

Each VEBA must provide some form of life insurance coverage, as well sickness or accident coverage, for all of the employers, their dependants and any designated beneficiaries. All of it's operations must be devoted to providing health care benefits for the employees and their dependants. The earnings generated through the VEBA cannot be used to benefit any individual, organization or a shareholder. Each VEBA must be controlled by either it's members or their trustees.

Finally, the VEBA's benefits cannot discriminate against any of the employees. The only exceptions to this are VEBA plans formed as the result of collective bargaining, but even then, they cannot violate federal civil right laws.

Establishing a VEBA

As mentioned above, VEBA can be formed by employees who share a common employment-based bond. They can also be formed by employers. Either way, they must apply to the Internal Revenue Service to receive a Letter of Determination--a document that certifies that their proposed VEBA's plan meets all of the requirements mentioned in the previous section.  Once the letter is received, the VEBA is recognized a legitimate trust fund and it can begin providing health coverage to the employees. However, if the IRS discovered that VEBA fails to uphold any of the requirements, it has a right to revoke it's authorization.

How VEBA Plans Are Funded

The VEBA plans are usually funded using the funds that would otherwise go to pay the employees when they take sick days. Thus, the less sick days the employee takes, the more funds he or she would have. VEBAs can also generate additional funding through other employer contributions or by purchasing private insurance. The funding structure tends to vary greatly depending on the VEBA.

Health Benefits of VEBA Plans

VEBA plans must provide health coverage and life insurance coverage to dependants and beneficiaries, in case the employee dies. However, the law does not set any guidelines for what those benefits have to be. As the result, as long as they have the funding, VEBAs can customize their plans. VEBAs can also add whatever additional health benefits they may choose, as well as extend their plans to the employees dependants and beneficiaries.

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