VEBA restatement for new Trustee

[KimberlyC]

I have a client who acquired companies with two very old VEBAs.  The VEBAs are trust documents and received favorable IRS determination letters on their Section 501(c)(9) status years ago.  The VEBA trusts have been amended from time to time to appoint successor trustees.  The client plans  to move all retirement and welfare trusts to a new financial institution. The new trustee insists its standard trust document must be used for the VEBAs and will not agree to incorporate or even attach the old VEBA documents that received the IRS ruling. The new trusts are boiler plate and contain no description of the original VEBA members or benefits (e.g., retired union employee; retiree health benefits).  The new generic trusts  state the trust  document plus the employer's welfare plans constitute the entire VEBA. I am concerned that the original IRS letters will no longer govern the VEBA's tax-exempt status if there is no provision of the original trust left and no description of eligible  members or benefits in the new trust documents. Note that the employer maintains a retiree health plan document, but the VEBA funds only certain members' (union) benefits. The new trustee insists obliterating the old document will not affect the VEBA's tax-exempt status.  

I appreciate that a VEBA can be amended and that a new IRS ruling should not be necessary simply to name a new trustee. However, i feel that the original VEBA documents that received the favorable IRS letters should at least be incorporated by reference ( at least to the extent they don't conflict with the new trust provisions). 

Any thoughts? I have considered amending the original VEBA trusts to incorporate the new trust documents (essentially doing through the back door what the new trustee won't allow through the front door). 

[Roberta Casper Watson]

I'm inclined to agree with you.  I understand why the trustee wants its responsibilities to be governed solely by its document.  But the same risk of liability can reasonably prompt the sponsor to want to protect things about the past and its past documents.  I'd be inclined to recommend against going with that trustee (although I expect that VEBA trustees may be a little hard to find).  

[KimberlyC]

Thank you for your thoughts. They are moving all plans (dbs, 401(k)) to the new trustee and want these small VEBAs to go with them.  I am amending the original trusts to treat the new trust as an amendment, incorporating the provisions of the new trust, and stating the new provisions supersede the old trust provisions to the extent they conflict, except to the extent the new provisions would jeopardize the original trust's status as a VEBA under Section 501(c)(9) and the tax-exempt status under 501(a) or change the rights of VEBA members.  I think it is the best I can do under the circumstances.

One issue is that original VEBA documents are so old they credit earnings monthly, don't provide for any electronic communication, etc. New trustees want their own documents, and you are correct -- very few financial institutions want to serve as VEBA trustees. This one is doing it only because it is getting the retirement plan business.