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Guest Donna Clements


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Guest Donna Clements

I have a question about veba's. My husband and I have a corporation. We are the officers and we have 6 employees. We have been approached about starting a veba. Instead of paying ourselves yearly bonuses out of our company, we would instead fund a veba. I know this entails buying several million dollars worth of insurance. My question is: What are the fees involved? How can we ever use the money in the veba? We have to join a union in order to do this. Is this legitimate? Is it legal? What are the upsides and downsides?

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There are obviously several questions:

Do you need that much life insurance???

Have you considered qualified plans (IRS approved) providing retirement benefits for you and your employees??

VEBAs are legitimate but they can be abused like anything else. I would be sure to consult an attorney before committing to anything.

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Your post raises a lot of questions:

Why would you have to join a union?

If you joined a union, why would owners and managers be eligible?

If the VEBA is being sold through the union, what authorizes an insurance agent to represent the union?

What authorizes anyone other than a union organizer to get you to join a union?

How is ratification and the CBA going to be done if you go through this agent's process?

If it is sold through the union and therefore also being sold to other companies, Why is this not a MEWA? If it not a MEWA where is the DOL PWBA certification? If it is a MEWA, where is the state DOI certification?

If it is not a MEWA, then is it a Multiple Employer Trust? If it is a MET where is the DOL or DOI certification?

Why would a MET need a union? Who are the Trustees etc?

Who is the TPA? Are they licensed/registered with your state DOI? If not, Why not?

I suggest that you do some investigation into VEBAs, MEWAs, METs and call your state Dept of Insurance Fraud/Unlicensed Entities Investigators (not the telephone customer services reps)after you have investigated.

Your state DOI, like many state keeps a notice on their website explaining alleged "Union", "ERISA" and fraudulent or unlicensed plans. Read the notices and warnings.

Call a few other unions and see what they think of this plan.

What does the insurance company itself say about their product being sold in this manner?

Have you read and understood the IRS Determination Letter and any other supporting documents that you might have been shown? Was it relevant? Remember this is their sales material, if it was not in their favor they would not have used it, take it with a grain of salt.

The DOL PWBA also has a new publication explaining and warning about the fallacies of many plans being sold as VEBAs and MEWAs.

Attached is an article from the ASPBA that should be of help. Remember selling mutiple employers into the same VEBA should create a MEWA which is why many of the articles focus on MEWAs rather than on VEBAs. A change of name does not change anything.


As a previous poster suggested... Get an experienced lawyer of your own choosing.

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Now that IRS and Treasury have tried to shut down illegal or ineffective 10-or-more employer plans, the promoters of the pseudo union plans are going nuts. IRS has promised to issue guidance before the end of the year.

In a nutshell:

1. No the arrangement is not "legal", at least in the sense of obtaining an exemption from the tax deduction limitations under IRC sections 419 and 419A.

2. The upsides: None

3. The downsides: You might lose all your money. You might have your tax deductions thrown out. You might be required to file a notice with IRS that you are participating in a "potentially abusive tax shelter". ETC.

Don't do it.

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