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Guest Steve Keith

I understand that a VEBA can be used to pre-fund retiree health benefi

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Guest Steve Keith

This is for a public sector employer. When establishing a VEBA, does the employer put the money in one account and then use this money to pay for retiree health plan premiums or does each employee have their own account? Any information you could provide would be greatly appreciated.

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A public sector employer i.e. a governmental instrumentality doesn't need a VEBA to set up a "fund" to pe-pay retiree health benefits. Many school districts in New York already have negotiated a variety of programs along these lines with their unionized employees. You can e-mail me with any specific questions you might have.

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I administer several retiree medical VEBAs for public sector employers and their employees. Although the ones I administer use separate accounts for each employee, either method is acceptable legally, and the terms of the plan and trust document(s) would control. The respondent was correct that a government employer does not need a VEBA to fund retiree medical benefits. However, the employees will be better off if their funds are not subject to the employers creditors or politicians who may choose to utilize the funds for another purpose.

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Question:

Is a VEBA established by a government tax exempt under IRC 115, or as a separte legal entity does it need to be tax exempt under another Code section? If its sole tax exempt status is under 501©(9), wouldn't the trust be subject to the tax on UBTI (making it imprudent to use a VEBA)?

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