Voluntary Employees' Beneficiary Association (VEBA)

What Is a Voluntary Employees' Beneficiary Association?

Voluntary Employees' Beneficiary Association (VEBA) is a type of mutual organization that gives life, illness, accident, medical, and comparable benefits to individuals, their wards, or their beneficiaries.

Grasping VEBA

A Voluntary Employees' Beneficiary Association (VEBA) can be laid out by employees or by an employer and must comprise of employees of a similar company or a similar labor union. VEBA benefits typically end when the employee leaves the company or labor union with which the VEBA is associated.

Either employees or their employer can contribute funds to a VEBA. Employer contributions are many times tax-deductible to the employer. VEBAs themselves are authorized by Internal Revenue Code section 501(c)(9) as tax-exempt organizations as long as their earnings are just utilized for giving benefits. In any case, benefits paid out to employees are not be guaranteed to tax-exempt to the employee. An employer making contributions to a VEBA would usually receive a deduction under Internal Revenue Code 162 for sums contributed. The employer could likewise receive a deduction in the event that the benefits were paid straightforwardly to the employee by the employer as part of a fringe benefit package.

For instance, the United Auto Workers framed VEBAs for their workers at the Big Three automobile manufacturers in 2007 and hence feeling better the companies from carrying liability for their wellbeing plans on their accounting books.

Conditions of a VEBA

A VEBA must meet several requirements, including that it be a voluntary association of employees to give benefits. A VEBA's earnings can't benefit any private individual, organization, or shareholder other than through the payment of benefits. The association must likewise be controlled by its individuals in whole or part by their trustees or an independent trustee, and a VEBA can not separate in that frame of mind of its benefits except if it was laid out as part of a collective bargaining agreement. Medical advantages might be paid out of the employer's overall assets, from a trust made by the employer, or by a combination of these funding instruments.

Any group of employees sharing a business related common bond might lay out a VEBA. This common bond could be a similar employer, or the equivalent collective bargaining agreement or union. In the event that numerous employers share similar line of business and similar geographic area, they are considered to share the "common bond" determined by the law. There are, generally, no limitations on either the size of the VEBA or the number of benefits that might be given, just upon the type of benefits and the people to whom benefits might be given.