College of Medicine students

[Ken Davis]

Apparently, our College of Medicine Student Assembly has formed a VEBA. The purpose of the VEBA, as I understand it, is for the COM students to have COBRA coverage upon graduation or completion of their fellowship or doctoral studies. The insurance carrier would not offer COBRA through the health plan without a VEBA, since as a state institution we are not subject to ERISA. The students are broken down into three groups - (1) the MD student in the four years of medical schoot, (2) Physican's Assistant students, and (3) Post-doc fellows and PhD students. Groups 1 and 2 have no employment relationship with the University; they are purely students. Group 3, the post-doc fellows and PhD students are employees of the University. The VEBA offers current health insurance coverage, with Groups 1 and 2 paying premiums personally to the VEBA and the premiums for Group 3 being paid by the Univeristy to the VEBA. Form 5500 is being filed by the administrator (an insurance agency).

Two questions:

1. Is filing Form 1024 to gain a 501©(9) exemption necessary for a VEBA that functions merely a pass-through for premiums and does not accumulate assets to pay benefits? In other words, is the 501©(9) exemption necessary (or desirable)?

2. May the VEBA cover Groups 1 and 2?

3. If the answer to 2 is No, then what is the consequence of providing such coverage?

Thanks,

Ken Davis

Univ. of South Alabama

[vebaguru]

My first impression is that your arrangement does not work, whether or not you receive a determination letter from the IRS, for any of the following reasons: (1) While as medical students you share a "common bond", since you are not employed, it is not "employment-related". (2) Your state insurance department may consider your arrangement to be a MEWA subject to their requirements. (3) While states may not be subject to ERISA, most have enacted state COBRA and HIPAA requirements.

Two questions:

1. Is filing Form 1024 to gain a 501©(9) exemption necessary for a VEBA that functions merely a pass-through for premiums and does not accumulate assets to pay benefits? In other words, is the 501©(9) exemption necessary (or desirable)?

2. May the VEBA cover Groups 1 and 2?

3. If the answer to 2 is No, then what is the consequence of providing such coverage?

1. Yes. A VEBA is not a VEBA unless it has been approved by the IRS. See IRC Section 505©. However, if the question is what is the point of being tax-exempt if there's no income, then the answer is no, you don't have to file.

2. IMHO, no. However, a non-VEBA trust could.

3. The answer to this question is implicit in my comments above. The primary consequence is that you might get in trouble with the state insurance department.

[IRC401]

Are you certain that your post-doc fellows are employees? Is your institution applying for a refund of FICA taxes on NIH (or other) grants on the grounds that the fellows are not employees?