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VEBA 501c9


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#1 fidu

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Posted 27 June 2002 - 03:38 PM

Must a VEBA plan that holds funds used to pay service providers always be invested and always earn interest similar to the way an ERISA trust fund must be invested at all times?

or, can you allow VEBA funds to sit idle pending payments to service providers??

#2 fidu

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Posted 28 June 2002 - 09:55 AM

are vebas even governed under erisa???

#3 mbozek

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Posted 28 June 2002 - 03:57 PM

Plans with assets are subjec to ERISA. Some VEBAs are set up specificialy to preempt state laws, e.g. in Cal employers are required to pay accrued vacation pay if the plan is paid from general assets so employers set up Vebas to forfeit vacation pay if employee leaves mid year.

Back to the basic question- Why would the er want the veba not to invest plan assets in stable value or mm fund since the VEBAs income is not subject to taxation?
mjb

#4 fidu

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Posted 02 July 2002 - 03:57 PM

the ER may only fund the veba account to cover w/drawals and payments to third party providers. my question is whether the funds that sit there need to be invested, or if they are allowed to sit idel to cover pending payments. there may be additional accounting and recordkeeping that would be eliminated if the funds are allowed to sit idle for a few days/weeks/months

thanks.

#5 mbozek

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Posted 02 July 2002 - 04:29 PM

If the VEBA is subject to ERISA fid rules then the fids have a duty to invest the funds in some income producing investment e.g, mm fund unless it would be imprudent to do so.--- I guess if they did not invest assets then the participants could sue for breach of fid duty... But how complex can the investment/accounting issues be in these days of software, spreadsheets and PCs???.
mjb

#6 fidu

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Posted 03 July 2002 - 10:54 AM

i understand, but now im back to square 1.

is the veba subject to erisa or not?. its a employee benefit VEBA plan to provide medical benefits to employees.

secondly it may not be prudent if the cost of moving the money for a day or two into an investment, would cost more than having it invested would yield.

#7 Katherine

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Posted 03 July 2002 - 11:07 AM

I would guess that two of the main investment objectives of a VEBA are to protect the money against losses and to have sufficient liquidity (no long term growth objective like in a retirement plan).

I've seen some VEBAs that invest in non-interest bearing accounts, so that they can keep funding levels up without having to worry about UBTI.

#8 vebaguru

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Posted 12 July 2002 - 04:12 PM

VEBAs are simply tax-exempt trusts or associations and as such are not inherently subject to ERISA. However, the welfare benefit plan that is funded through the VEBA is likely subject to ERISA, at least to those portions of ERISA that apply to welfare benefit plans and health plans.

The VEBAs I administer have arranged to be held in "sweep accounts" so that excess funds are placed overnight into interest bearing accounts. This is an automatic (no-charge) function with most banks.

UBIT applies for accumulation accounts for future medical benefits. (UBIT does not apply to the 25% reserve for delayed claims permitted under IRC section 419.)