Corporation has VEBA plan that fully funded VUL life insurance policies for employees. Now business is bad, so no money left in trust account. Can plan be amended ?

[Guest fplearner2005]

Given the scenario that the corporation over last 3 years is no longer making even enough money to pay salaries and that it does not see it getting out of this recession, what can be done ? The money that was in the trust account already funded the VUL policies for employees.

So somehow can the plan be amended or terminated so that the cash values be rolled over to individual annuities or irrevocable life insurance policy trusts to avoid tax consequences for the employees and shareholders who will now work elsewhere or even retire ?

Goal is to avoid tax for the employees, leave/convert VUL insurance policies in place, & not having to pay any ongoing administration overhead.

The plan is set up for multiple employer trust (Master Trust)

The corporation has its own trust, part of the master trust.

Established in 1997 & funded thru 2001.

Seeking advice on what to do.

[GBurns 20]

Isn't all of this covered in the PD and Trust documents?

Exit and funding strategies should have been among the prime considerations when participation in the scheme was initially contemplated.

What directions/opinions have the plan promoters presented?

Does this help?: http://benefitslink.com/IRS/revproc2005-25.pdf

[Guest b2kates]

I question the funding assumptions if the VEBA was "quick" funded; and appears to be fully funded.

Does not appear IRS has audited this VEBA;

is there a favorable determination letter from IRS?

[GBurns 20]

b2kates

Would a determination letter have addressed the funding?

[Guest fplearner2005]

Here is addl information-

1) The plan is a part of the MET. Each business has a trust acct. There is an IRS letter of determination. Plan has been in compliance. So all that has been in good shape.

2) The money contributed bought Life Ins policies for the employees. The trust acct is at a bank, trust owns the Life Ins policies for the benefit of the employees.

3) The previous administrator retired, and went thru a transition, a new person took over. He is very sloppy/lazy and disorganized. Getting any paperwork & answers from him takes forever.

4) Life Ins agent doesn't seem to have much incentive because no new funds roll in, so not much in commissions, except may be residual.

5) Due to the recession, the employees took another job or retired.

6) So the business is looking into terminating the VEBA plan, and seeking advice on what are the best options.

[GBurns 20]

Is the determination letter for/to the MET or is for/to the Plan?

[Guest fplearner2005]

I think the IRS letter is for the MET, I did place a call with the administrator & I am waiting for an answer.

[GBurns 20]

Since you do not know what the determination letter covers, How can you say " Plan has been in compliance. So all that has been in good shape." ?

Again, exit (termination) options and startegies should be addressed in the Documents.

[mbozek 27]

IRS determination letters only cover the form and not the operation of the plan. The deductibility of each employer's contribution is determined in accordance with compliance with IRS rules for that employer, e.g., benefits must not discriminate in favor of HCEs, etc. The employer needs to retain a tax advisor to determine the best course of action.