PRESENTATION ON VOLUNTARY EMPLOYEES BENEFICIARY ASSOCIATION (VEBA)

Presented by:

Vimal pandey

Shailendra pratap Aditya Prakash

What does mean VEBA?

A voluntary employees' beneficiary association (VEBA) is a form of trust fund permitted under Federal law whose sole purpose must be to provide employee benefits. Among the types of benefits with a VEBA may provide are accident insurance benefits, childcare costs, employee continuing education, ,life insurance benefits, severance pay, sick leave pay, training benefits, and vacation pay.

WHAT BENEFITS MAY BE PAID FROM THE VEBA?

A. The VEBA may either pay directly, or reimburse employees for, any medical expense that is permitted to be taken under the terms of section 213 of the Internal Revenue Code. This encompasses a very wide range of expenses, including: Medical Insurance Dental Insurance Vision Insurance Health Insurance Health Maintenance Organizations (HMOs) Preferred Provider Organizations (PPOs) Long Term Care (Tax Qualified Medicare Supplement Insurance Plan Deductibles and Co-Pays

B . Many other benefits may be provided by a VEBA, ranging from child care, housing allowance plans, auto lease assistance, investment advisory services, legal services, mass transportation assistance and mass purchasing power. Many of these programs may be provided on a tax exempt or partially tax exempt basis through the VEBA. The following list from the IRS is typically available to VEBAs: PART III ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

Sec. 101. Certain death benefits Sec. 104. Compensation for injuries or sickness Sec. 105. Amounts received under accident and health plans Sec. 106. Contributions by employer to accident and health plans Sec. 108. Income from discharge of indebtedness Sec. 109. Improvements by lessee on lessor's property Sec. 117. Qualified scholarships Sec. 127. Educational assistance programs

Objective of VEBA

The VEBA may provide a particularly flexible, tax effective vehicle to accumulate assets to pay the health and many other eligible expenses of its members and their dependents. Many of the other expenses may be provided, such as child care, tuition assistance, transportation assistance, subsidized housing etc. Secondary objective is the provision for crossover benefit funding within the VEBA, wherein VEBA assets may be used to fund different benefits.

HOW WILL THE VEBA BE STRUCTURED?

I. Separate Legal Entity The law requires that a VEBA must establish a plan and trust set up by one or more employers for the purpose of providing health and welfare benefits to their employees. The VEBA must meet strict requirements of the Internal Revenue Code and be a separate legal entity. A 501(a) trust, which is a separate legal entity, will be established with a bank as trustee. Service Providers In addition to a trustee, several outside providers are needed to provide services to the VEBA. Public Agency Retirement Planning, Inc., will act as Trust Administrator, with responsibility for overall coordination of the implementation and administration of the VEBA and will oversee the operations of the VEBA in order to maintain Federal and State Compliance

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Plan Flexibility Because health care is such a dynamic area the VEBA will be modified to meet changing needs of the Agency, governmental regulation, the requirements of labor negotiations and the other factors that impact health and other benefits. This is a crucial responsibility of the Plan Administrator. Agency Participation An agency will participate in the VEBA by adopting a plan document specifying the provisions of its program i.e., specifying reimbursable benefits, and depositing money into the trust.

WHAT ARE THE TAX ADVANTAGES OF A VEBA WHEN USED TO PAY POST RETIREMENT HEALTH EXPENSES?

There is a three-fold tax advantage.

1. Pre-Tax Contributions
For example, a retiree with accumulated leave or vacation time at retirement of $10,000 could enjoy the following savings: If the leave were paid currently: Gross Cash-Out $10,000 (50 days at $200 / day) Less Taxes 3,565 ($10,000 X 35.65%) Net Cash-Out $ 6,435 Gross Cash-Out $10,000 Less Taxes - 0 VEBA Contrib. $10,000 The VEBA saved $3,565 in taxes.

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Tax Free Growth This $10,000 will then earn tax free interest during the time it is invested in the VEBA prior to payment, and is then used at retirement to increase the fund available for retiree payments. Tax Free Payment Consider the situation when the VEBA account is used to pay benefits. Health expenses are generally not deductible since they must exceed a threshold of 7.5% of adjusted income before they become deductible. To retirees this means they must first receive their pension payments and pay tax on the entire amount before they pay medical premiums and expenses.

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Thank You