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Guest cmilom@lbmc.com

Terminating VEBA audit requirement

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Guest cmilom@lbmc.com

A client has a VEBA plan for which the following is applicable:

  • At the end of year 2005, included $1M in assets
  • the VEBA trust account was terminated 1/1/06 and all assets paid out by early Feb. 2006
  • All participants covered by another plan beginning 1/1/06 (so only payments were for claims incurred in prior years)

Since the audit is of the plan and not the trust, would you need to audit the entire year of 2006 which includes claim payments for claims incurred in 2005 and the majority of claims, including all claims after Jan .2006, were paid from the general assets of the employer (making it an unfunded plan upon the trust account termination). Also, my assumption is you would include all plan activity whther from the trust account or from the employer's general funds?

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The plan had zero remaining participants as of 1-1, so the argument could be made that no audit is required. However, the 2006 5500 participant count (BOY) needs to reconcile to the 2005 5500 participant count (EOY).

I would contact IRS (TE/GE) and ask for their take on this. I believe that they'll let you off the hook since all assets were distributed before the end of the year. What is left to audit? Only the benefit payments.

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Not exactly on point but was hoping to get some general thoughts as to usual practice with a VEBA termination. We had MEWA health plan for trade association funded through VEBA trust. The health plan terminated at the end of 2006 and the run-out claims have nearly stopped (under the plan, they have until 12-31-07 though to get final claims in so we cannot shut down trust completely).

There will likely be a good bit of money left over in the VEBA after all claims are covered. Are thinking about using that to fund various life, sick, accident, or other benefits for association members going forward. Nothing too complex proposed and no plans to directly distribute funds to individual participants. Probably will turn into a broad Wellness Program and EAP-type program for the benefit of all association members. Obviously, that sort of arrangement would not match up 100% with the association members that participated in the health plan over the last several years but it would seem to provide appropriate VEBA-like benefits per the IRS regulations and VEBA trust document and would be done for the broad-based benefit of the sponsoring association.

Am assuming it makes sense to seek a PLR on the proposed plan even if we do not anticipate anything particularly unusual but would be interested in others' thoughts on the risks of not going to time and expense of getting a PLR. Do many folks terminate VEBAs with significant funds remaining and not seek a PLR on distribution of those funds. Would also be curious as to what people find to be the most common types of benefits to use up excess VEBA funds.

Also, am curious if there is any need or great benefit to seeking an Advisory Opinion from the DOL with respect to the MEWA / plan's termination and possibly the use of the remaining funds. I wouldn't think the DOL has any oversight over the remaining VEBA funds or much to say on the plan / MEWA termination as the plan was simply terminated without issues.

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401 Chaos - you might want to review the 5500 and 990 instructions as they are fairly specific about what to report for VEBA termination, and I believe a description of the final disposition of assets and the distributees is required.

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Thanks. I guess my question is not so much with respect to the reporting requirements but in design / strategy of shifting from a terminating health plan over to the provision of other appropriate VEBA benefits over what could be a number of years until all the remaining assets are wound down.

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401chaos - You might also look at the IRS letter for the tax exemption under 501©(9) - it obligates the VEBA to notify the IRS when of changes in the purpose or operation of the VEBA. That may be the proper route to approval of the change, rather than a PLR. I can tell you that I did this about 4 years ago without IRS preapproval - based on what the 501©(9) letter said, the terms of the VEBA, and a review of the benefits that would be provided. I'd wished I had some sort of IRS or DOL preapproval when it was time to file the final 5500 that requested information about final distributions and had to describe everything to the CPA who was doing the final audit, and at that point there were no assets left. It all worked out, but it could have been cleaner with some sort of preapproval.

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