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Can a VEBA offer severance pay-out at retirement?


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I have been working through some problems with a VEBA. Currently, the

VEBA (a multiemployer plan) allows a person to take his entire "account" balance upon a 12 month severance from employment. This provision applies regardless of the reason for leaving the trade...including retirement.

The regulations seem to clearly prohibit any severance pay that is triggered directly, or indirectly by a person's retirement. 29 CFR 2510.3-2(b). We also found a couple of cases that which held the same.

Am I missing anything? Is there a rule out there that would allow such a payment to be made?

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  • 3 weeks later...

A payment to a participant on account of his termination of employment is permissible; a payment to a participant by virtue of his retirement is not.

One more point: DOL has primary jurisdiction over collectively bargained plans, so you might look through DOL rulings in similar situations.

IRS doesn't permit severance benefits inside a VEBA, because IRS considers them to be a form of deferred compensaiton. DOL considers severance benefits to be a form of welfare benefits and does permit such benefits. Because of that, IRS will accept severance benefits in plans for which DOL has primary jurisdiction.

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