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A New Innovative Alternative
VEBA/HRA 101 A New Innovative Alternative
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Today’s Agenda Introduction VEBA Applications GASB 45 Questions
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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
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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
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Individual Medical Reimbursement Accounts
Rev. Rul & Notice HRA Established June 2002 H Health R Reimbursement A Arrangement Individual Medical Reimbursement Accounts
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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
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Two Separate Pieces Must Work Together
VEBA IRC Section 501(c)(9) Funding Source for Participant Accounts HRA Rev. Rul Notice Rev. Rul Rev. Rul Notice Notice Rev. Rul VEBA HRA
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VEBA Applications
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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
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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
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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
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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
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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
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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)
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Who is a good prospect? Municipalities Schools Universities
Taft Hartley (love the idea that employer can’t take it away)
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Questions?
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Contact David Ritchie VP of VEBA Sales BPAS
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