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Terminated VEBA with employee contributions


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We terminated a Life VEBA 8 years ago

It has employee contribution monies in it plus interest over the years

Quite a few of the employees have terminated since then

It was a legacy VEBA that we took over when we acquired the Company

I have been asked now what we can do with the money?

My initial response is to distribute it plus interest to the employees based on

their contributed amounts plus interest. It is my understanding that noone has been tracking this by employee for the last 8 years

Another alternative is to provide addiitonal life, sickness, accident or other benefits to employees as long as not disproportionate benefits to officers,shareholders or highly compensated employees.

In the 2nd alternative, must the employees we provide additional benefits to be

the same employees who contributed? I would assume so

VEBA's are not my area of expertise.

For anyone who has ever terminated a VEBA provide any insight. What did you do with the money?

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There are some old PLRs that use the approach you mention. You may wish to file for your own PLR to make sure that the approach will not be attacked.

The statutory/regulatory requirements prohibit reversion of funds to the employer and private inurement to any individual. The funds clearly can be used to provide benefits to employees, their dependents and beneficiaries.

Previously, once all promised benefits had been provided, the funds left over could be distributed to employees. Cash payments to covered employees cause IRS some heartburn, especially recently, because they sound like a form of deferred compensation.

The simplest form of using up the funds left over would be to utilize the funds to provide benefits to employees, their dependents or beneficiaries. It may be possible, for example to use the funds to pay for a the employees' portion of group health premiums, for example, or to fund the purchase of paid-up group life insurance. Of course the plan must be amended to provide for the benefit for which the funds will be used.

In IRS's view, once employee contributions have been made to the VEBA, those are akin to premiums having been paid to the insurance company for coverage under a policy: the employees do not ever get their premiums back but only the benefits promised and provided under the plan for which the premiums were paid in the first place. Termination of the trust is not considered to be a triggering event. So I don't believe that benefits have to be proportionate to the funds paid in by employees, only non-discriminatory.

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