Fidelity Bonds

[Archimage]

Are VEBAs required to have fidelity bonds?

[GBurns]

Shouldn't it be the Trustees instead?

[Archimage]

I apologize if I confused you. I did not mean the trustees only. My question meant to include all fiduciaries associated with the VEBA. I would assume the same rules apply to VEBAs as they do 401(a) plans but I do not know for sure.

[GBurns]

Fidelity bonds are more geared towards covering employee dishonesty so Fiduciary Liability insurance might be more appropriate for fiduciaries and D&O (I think there is also Trustee Liability coverage) for Trustees.

So the VEBA buys Fiduciary Liability to ptotect itself from the Trustees and others, but it makes the Trustees buy Trustee Liability and the Administrators buy Fiduciary Liability.

I do not think anything is required unless the by laws say so, but prudence dictates that you get insurance.

You might want to get the differences from a good agent. Maybe 1 of our members with exposure to this issue will post.

[Kirk Maldonado]

The bonding requirements for plans are contained in ERISA Section 412 and the regulations under that provision.

[Archimage]

Since I am very unfamiliar with VEBAs, let me ask this question in a different manner since I cannot get a straight answer. Is a VEBA a qualified plan under ERISA?

[GBurns]

The VEBA is not a qualified plan, it is the plan that provides the underlying benefits that qualifies as either an "employee welfare benefit plan", a "welfare plan" or a "pension plan" etc.

The VEBA ( a Trust) is generally just the medium used to secure the payments and continuity of the underlying benefits.

[vebaguru]

Fiduciaries of all ERISA trusts are required to be bonded. This is not related to whether or not the plan or the trust is "qualified" under a section of the Internal Revenue Code.

[Archimage]

That is what I am trying to find out. Is a VEBA an ERISA trust?

[Lori Friedman]

In general, Title I of ERISA applies to VEBAs. A VEBA is an employee welfare benefit plan that meets all of the statutory and regulatory requirements of I.R.C. Sec. 501©(9). ERISA's reporting and disclosure requirements, participation and vesting rules, minimum funding standards, and enforcement provisions affect VEBAs to varying degrees.

[GBurns]

From what vebaguru says, it does not matter whether it is an ERISA trust or not, See his posts.

[Kirk Maldonado]

Lori Friedman:

As was stated above, a VEBA isn't a plan, it is a funding vehicle. It is no more of a plan than a trust agreement is a plan.

[Lori Friedman]

Kirk, your clarification is noted.

A VEBA is an I.R.C. Sec. 501©(9) exempt organization that accumulates resources for the payment of certain welfare benefits. As a tax-exempt organization, a VEBA is subject to the Form 990 filing rules.

A VEBA isn't necessarily a trust. VEBAs are often formed as corporations or unincorporated associations. Because a VEBA may be subject to unrelated business income taxation on its non-exempt function income, it can be advantageous to use a form of entity other than a trust. Income is taxed at the corporate rates if the VEBA exists as a corporation or association, but at the higher trust rates in the case of a trust.