VEBA Welfare Benefit Trust

Question 1

VEBA Welfare Benefit Trust

Answer 1

Employers make contributions into an irrevocable trust that will be used to provide specific employee benefits in the future

Question 2

What is VEBA?

Answer 2

A specific type of Welfare Benefit Trust that has certain employer and employee tax advantages

Question 3

What happens if a welfare benefit trust does NOT meet the requirements of VEBA?

Answer 3

Employer contributions to the trust will be taxable to covered employees in the year in which they are made
AND
any income generated by the welfare benfit trust will be taxable to the covered employee

Question 4

When is it indicated? (2)

Answer 4

1. provide security for all covered employees

2. Accelerate the deductibility of future employee benefit costs by pre-funding

Question 5

3 Advantages

Answer 5

1. Enhances benefit security for individual employees
2. income earned is tax exempt
3. Employers can use certain, employer-funded whole life insurance policies to fund death benefits

Question 6

3 Disadvantages

Answer 6

1. Installation and admin costs
2. employer loses control over plan design
3. a reversion of assets back to the employer is effectively prohibited

Question 7

How many employees must is cover?

Answer 7

more than one

Question 8

What is the best idea when deciding employee coverage?

Answer 8

Cover ALL employees

Question 9

What happens with income from plans tha provide a disproportionate share of benefits to an owner-employee?

Answer 9

will NOT be tax exempt

Question 10

6 Permitted VEBA benefits

Answer 10

1. death benefits funded with life insurance before and after retirement
2. severance pay
3. unemployment benefits
4. disability benefits
5. medical expenses
6. other– vacation/recreation benefits, disaster benefits….

Question 11

2 Prohibited VEBA benefits

Answer 11

1. Savings, retirement or deferred compensation
2. Coverage of expenses not related to the maintenance of an employee’s earning power (commuting expenses, accident or homeowners’ insurance)

Question 12

Do VEBA benefits discriminate?

Answer 12

no

Question 13

Are benefits that are payable to employees subject to the same tax treatment as if they were paid directly by the employer?

Answer 13

yes

Question 14

Is income from VEBA tax exempt?

Answer 14

yes

Question 15

When must the VEBA notify the IRS?

Answer 15

within 15 months from the end of the month in which the VEBA was organized

Question 16

What is VEBA income that is set aside for benefits and admin in excess of account limits subject to tax as?

Answer 16

unrelated business taxable income

Question 17

Do UBTI rules apply even if VEBA is part of a 10 or more employer plan under Section 419(f)(6)?

Answer 17

yes

Question 18

What funding can eliminate or minimize any UBTI exposure?

Answer 18

:Life insurance or tax-free investment vehicles

Question 19

Why are cash value life insurance contracts NOT recommended to be placed inside a VEBA?

Answer 19

it will probably not be possible for the employer to deduct the entire premium for the contract in the year it was paid

Question 20

Generally, an employer can deduct what to fund benefits through the VEBA?

Answer 20

actuarially reasonable contributions

Question 21

What are deductions generally limited to?

Answer 21

the current annual cost of benefits, with a small reserve provision for benefits or claims incurred but not paid

Question 22

Is a VEBA subject to ERISA?

Answer 22

Yes