A New Innovative Alternative VEBA/HRA 101 A New Innovative Alternative

Today’s Agenda Introduction VEBA Applications GASB 45 Questions

Tax-Exempt Employee Benefits Trust Code Section 501(c)(9) VEBA Established 1928 V Voluntary E Employees’ B Beneficiary A Association Tax-Exempt Employee Benefits Trust

What is a VEBA? A tax-exempt irrevocable trust arrangement Funds deposited by the employer on behalf of the employee Funds may be used to pay for current or future out-of-pocket health-care-related expenses Timing and ability to access funds always based on the bargaining agreement

Individual Medical Reimbursement Accounts Rev. Rul. 2002-41 & Notice 2002-45 HRA Established June 2002 H Health R Reimbursement A Arrangement Individual Medical Reimbursement Accounts

What is an HRA? Account-based health plan Participants use HRA funds to cover qualified health-care expenses and premiums Employer contributions, earnings, and withdrawals (claims) are exempt from taxes

Two Separate Pieces Must Work Together VEBA IRC Section 501(c)(9) Funding Source for Participant Accounts HRA Rev. Rul. 2002-41 Notice 2002-45 Rev. Rul. 2005-24 Rev. Rul. 2006-36 Notice 2010-38 Notice 2010-59 Rev. Rul. 2010-23 VEBA HRA

VEBA Applications

VEBA Characteristics Separate legal entity Irrevocable Assets protected from creditors Can fund Health Reimbursement Arrangement (HRA) individual accounts Directed investments Triple-dip tax-advantaged accounts

Health Savings Account (HSA) Triple Tax Advantage Contributions Earnings Withdrawals Income Replacement Pension 401(k) 457 401(a) 403(b) IRA Roth Expense Management Health Savings Account (HSA) VEBA-funded HRA

What’s Possible with a VEBA? Fund post-employment premiums and expenses Retiree Medical Savings Accounts Embed with High Deductible Health Plan for active employees Consumer Directed Health Care Hold health care “reserves” for future medical expenditures GASB 45 pre-funding Self-funded plan reserves

Qualified Reimbursable Expenses Qualified Expenses Reimbursed from Participant Account Most Legitimate Expenses for Active Employees and Post-Employment Participants (See IRS Publication 502): Non-Insured Medical and Dental Expenses Prescription Drugs Chiropractic, Acupuncture, Alternative Remedies Eye Glasses, Contact Lenses, and Supplies

Qualified Reimbursable Expenses Post-Employment Insurance Premiums: Medical, Dental & Vision – Post-Employment COBRA and Retiree Medicare Parts B & D Medicare Advantage Plans (Part C) Medicare Supplement Plans – Medigap Coverage (HRA only) Qualified Long-Term Care

Funding Sources Fringe Contributions Function of Future Wage Increases Recapture Strategies Mandatory Employee Contributions Accrued Sick/Vacation Time Employee Contributions to Other Benefit Plans Participation in High Deductible Health Plan (HDHP)

Who is a good prospect? Municipalities Schools Universities Taft Hartley (love the idea that employer can’t take it away)

Questions?

Contact David Ritchie VP of VEBA Sales BPAS 425.330.5990 dritchie@bpas.com