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Guest Calimayhew

Definition of "employee" for 90% test

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Guest Calimayhew

I'm looking for guidance (more of a confirmation, really) on the definition of the term "employee" as used in the regs. for VEBAs. We have a client who has let in non-bargaining unit employees. After several years, the non-bargaining employees exceed the 10% limit. This is a bad thing, right?

Is a possible solution setting up a second VEBA within the same trust? A non-bargaining unit VEBA and a bargaining unit VEBA? If that is the case, then what's the big deal with letting the non-bargs in in the first place? Aren't they employees?

Thanks!

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VEBA eligibility requirements are contained in IRC section 505.

The requirement under 501©(9) is that 90% of the participants must be employees. Whether or not they are union, collectively bargained, salaried or hourly-paid is irrelevant.

I believe that you are referring to whether or not a plan will be deemed to be collectively-bargained, not a requirement under 501©(9).

Collectively-bargained plans have several advantages:

1. They can provide dependent college education benefits.

2. They are exempt from UBIT on retiree medical accumulations.

3. They are exempt from the funding and deduction limitations imposed under IRC sections 419 and 419A.

4. Etc.

The separate plan approach will work well. However, in creating the non-collective bargaining plan, you need to accomodate the differences referred to above.

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If you are looking at 419A stuff, if the welfare fund was established after 7/1/85 then to be a collectively bargained welfare plan (and essentially exempt from 419A limits for the collectively bargained employees in the VEBA) 90% of your benefit eligible employees need to be collectively bargained. If you don't meet this, my understanding is that 419A "kicks in" for everyone.

1.419A-2T

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Guest Calimayhew

In a multiemployer plan, how do you determine who is an employee for purposes of "employee of the employer"? If it is all employers who are contributing to the trust, then all employees would be in, regardless of bargaining status (as vebaguru says above). If so, then my senior partner has made a mountain out of a molehill and I've wasted entirely too much time chasing my tail. :blink:

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Unfortunately there is no black and white answer to your question, partially because you were not specific enough about what you were looking for. You seem to want the definition of "employee" when it is used under IRC 501©(9). 501©(9) doesn't have its own definition, so I referred you to IRC 505, non-discrimination rules for VEBAs because it does contain a definition.

Your latest post seems to be more occupied with who is an employer in a multi-employer plan. Of course the answer to that question would be in the collective bargaining agreement. Generally it would be any employer who employs someone subject to the CBA. So bargaining status does matter. Moreover, the CBA will state which employees are considered employees for purposes of the CBA and of the VEBA.

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