Voluntary Employees Beneficiary Association Veba Overview

Voluntary Employees’ Beneficiary Association (Veba) Overview

Anthony Battle is a CERTIFIED FINANCIAL PLANNER™ professional with the Chartered Financial Consultant® designation, the Chartered Life Underwriter® designation, the Accredited Financial Counselor® designation, and both the Retirement Income Certified Professional® and Certified Retirement Counselor designations.

What Is a Voluntary Employees’ Beneficiary Association?

Voluntary Employees’ Beneficiary Association (VEBA) is a mutual organization that provides life, illness, accident, medical, and similar benefits to members, their dependents, or their beneficiaries.

Understanding VEBA

A Voluntary Employees’ Beneficiary Association (VEBA) can be established by employees or by an employer and must consist of employees of the same company or labor union. VEBA benefits normally end when the employee leaves the associated company or labor union.

Both employees and employers can contribute funds to a VEBA. Employer contributions are often tax-deductible. VEBAs are authorized by Internal Revenue Code section 501(c)(9) as tax-exempt organizations, but benefits paid to employees are not necessarily tax-exempt. An employer making contributions to a VEBA may receive a deduction under Internal Revenue Code 162.

For example, the United Auto Workers formed VEBAs for their workers at the Big Three automobile manufacturers in 2007, relieving the companies from carrying liability for health plans on their accounting books.

Conditions of a VEBA

A VEBA must meet several requirements. It must be a voluntary association of employees providing benefits and its earnings cannot benefit private individuals, organizations, or shareholders. The association must be controlled by its members or an independent trustee, and it cannot discriminate in benefit payments unless established under a collective bargaining agreement. Health benefits may be paid from the employer’s assets, a trust created by the employer, or a combination of these funding mechanisms.

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Any group of employees sharing an employment-related common bond may establish a VEBA, such as the same employer or the same collective bargaining agreement or union. Multiple employers in the same line of business and geographic area are also considered to share the specified "common bond." There are generally no limitations on the size or number of benefits provided by a VEBA, only on the type of benefits and the eligible recipients.

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