veba payment of vacation benefits

[Guest dob]

I am considering the establishment of a VEBA to pay vacation and holiday benefits, in part to provide a common vacation policy for all workers and avoid application of individual state vacation rules. It appears that courts are not receptive to ERISA preemption under these circumstances. (However, I intend to have the VEBA pay benefits directly to employees, rather than reimbursing the employer.) Are these types of VEBAs being used currently, and if so, is anyone familiar with any issues being raised by various states? Does anyone know of organizations that can handle administration and payments from a VEBA paying vacation benefits?

[mbozek]

I though there were cases involving Cal./Ore. vacation law where the cts held that state laws were preempted from applying to a veba which pays benefits to the employees but were not preempted if the VEBA reimbursed the employer for vacation benefit. As I understand the ERISA regs vacation pay which is made from the employer's general account is not a ERISA plan and benefits are subject to state law.

[Guest dob]

You're right, there are cases out there discussing the origin of the payment as indicative of whether the plan is an ERISA plan or a payroll practice. However, I don't seem to find any cases which actually deal with a single employer VEBA paying benefits directly to employees (rather than reimbursing the employer). I'm wondering if the lack of cases means that no one is setting up this type of VEBA or that, while there are lots of these VEBAs in existence, they are simply not being challenged in court.

[Kirk Maldonado]

The ones where the benefits are paid directly from the VEBA to the employees are still around. There are no cases challenging them because they clearly work. I've set up many of them over the past twenty years.

[Guest Darcy L. Hitesman]

When the VEBA pays a vacation benefit to the employee, is the VEBA responsible for withholding? And who is responsible for the reporting, etc.? On the one hand, the vacation is an employer benefit so it seems like the employer is ultimately responsible (but could enter into an agreement with the VEBA as its agent to do the withholding). On the other hand, the VEBA is a separate legal entity with the responsibility for payment so it seems like the VEBA is ultimately responsible. Any guidance from those of you who routinely work with vacation trusts?

Thanks.

[mbozek]

The VEBA as payor is responsible for all withholding and reporting if it makes payments to the employees which requires that the veba have the necessary tax reporting systems in place for Fed st & FICA witholding. Employers try to avoid this additonal expense by paying the vacation pay to the ee directly and requesting reimbursement from the VEBA for the benefits paid but then the vacation plan is subject to state laws on payment of vaction benefits. See previous posts for comments on effect of paying benefits through the VEBA.