Union vs. Mgmt VEBA

[Guest Patriot190]

An actuary informed a client that the non-Union VEBA investment income is taxable, whereas the Union VEBA investment income is not. For purposes of Financial Statement preparation, the expected long term rate of return of the VEBAs will be reported separately if the VEBAs are taxed differently.

I can make no sense of this actuary's statement. Would anyone please shed some light on this issue?

Many thanks!

[vebaguru]

VEBAs are tax-exempt entities but are subject to UBIT on their investment earnings.

Collectively-bargained VEBAs are not subject to UBIT.

[Guest Patriot190]

Thank you for this information. Would you be able to provide a citation to support what makes collectively bargained UBIT different from non-collectively bargained UBIT?

Thanks again for your insight!

[Guest Leo the Lion]

See the specific UBIT provision at IRC section 512(a)(3)(E)(i), which cross-references the account limit determined under IRC section 419A. This provision of 512 effectively applies UBIT to VEBA assets in excess of the applicable 'account limit' as determined under IRC section 419A. Under IRC section 419A(f)(5)(A), no account limit applies to bargained VEBAs. Consequently bargained VEBAs do not have assests in excess of the account limit.

In theory, (and under some PLRs) a bargained VEBA could exceed the account limit, but only if the assets in the bargained VEBA were to exceed the present value of all future benefits. But that's another matter.

[Guest Patriot190]

Thanks Leo. This is helpful.