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Financials for a VEBA or grantor's trust


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I am assuming that this is considered a funded plan. I have to say that because the use of the term "grantor's trust" wouldn't always mean that.

For a funded plan, try the AICPA's Audit and Accounting Guide "Audits of Employee Benefit Plans." Chapter 4 covers the financial reporting for funded welfare plans. The appendix includes sample financial statements.

If it is a plan that requires an audit, you may need some kind of actuarial or lag study of the incurred, but not reported claims, future obligations, etc. This is discussed in AICPA Statement of Position 92-6.

If it is a small plan, you just need the same kind of information that is requested on Schedule I of the Form 5500 series. You may have investments with related gain/loss or earnings, as you would see in a retirement plan. You also will have contributions, you may have fees, you will see a bunch of claim payments or premium payments.

If you aren't sure what they were expecting to see, you might ask for a copy of their exemption application. That filing typically requires the inclusion of some financial estimates.

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  • 1 month later...
Guest PeterBradley

I read something indicating that annual reports (5500s) for MEWAs filed for plan years beginning on or after 1/1/2000 will be subject to rejection if there is any material qualification in the accountant's opinion due to a failure to comply with SOP 92-6.

Does this enforcement policy also apply to VEBAs?

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  • 2 weeks later...

The DOL had granted multi-employer plans an extension on their requirement to comply with SOP 92-6. That relief program is now over and their future filings are to be consistent with GAAP. I am not aware of any MEWA exception, I suspect that you just got some confusion between multiple employer arrangements and multi-employer plans.

To the extent that a single employer welfare plan includes benefits that may trigger future benefit obligations, they have been subject to SOP 92-6 since 1994 (I think). Failure to comply with the SOP may result in a qualified or adverse opinion. The DOL has always taken the position that the only acceptable letters are unqualified opinions or the statutory disclaimer (limited scope). Thus, the failure to comply with SOP 92-6, if material, could trigger an unacceptable opinion.

See Chapter 4 of the AICPA Employee Plans Audit Guide for more information.

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Guest PeterBradley

I think Becky's suspicions are correct. The discussion of this subject matter that I read was quite vague. Now that I read it again, what I think what I read was intended to address multiemployer welfare benefit plans.

My particular circumstance, however, does not involve a multi-employer plan. It involves a VEBA of a single employer. The accountant who is preparing the VEBA's 5500 is telling my client that the rules have changed for my client's VEBA, and that the VEBA's 5500 (beginning with the 2000 plan year) must be accompanied by an accountant's opinion that does not contain any material qualification. This clearly represents a change in the VEBA's 5500 filing practices, and the client is trying to understand the basis for the accountant's insistence on such a change.

Must a VEBA file a 5500 accompanied by an accountant's opinion that contains no material qualification to avoid rejection by the DOL? Is there a rule change or a change in enforcement policy that makes this an important compliance issue beginning with the 5500 filed for the 2000 plan year. If so, what was changed and where might I be able to read about it?

Thanks much!!

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Hey - I watch this stuff very carefully. There is no change in the Form 5500 reporting rules or the accounting guidance on this point. A funded welfare plan is subject to filing a Form 5500. A plan that includes a VEBA is generally considered funded. (There is some discussion about this in the context of a VEBA that has never included any assets, but outside of that rare circumstance, the arrangement would be considered funded and subject to Form 5500 reporting.)

(Note, I am assuming that your client is subject to ERISA - e.g. not a government plan.)

The audit is required once the plan covers 100 participants. If you filed a Form 5500 in the past as a small plan, your client would be eligible for the normal 80 to 120 participant transition rule before hitting the audit requirement.

There is a lot of misunderstanding about what is "funded" for a welfare plan and when the audited financial statements are required. It may be that the CPA just learned what the rules are.

Or, the plan was audited in the past, but included some other report for the failure to disclose the SOP 92-6 benefit obligations, it may be that they misunderstood the transition rule and thought it was broader.

If you need to stay up to date on the evolution of the financial reporting rules for benefit plans, you should consider getting a copy of the risk alert that the AICPA prepares each year for benefit plans. It updates all of the regulatory and financial reporting activity of the prior year.

Hope this helps!

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Guest PeterBradley

Becky...that helps alot!

At the risk of going to the well once too often, I'd like to refine my question(s) a bit further. Given your obvious knowledge of these rules, your reaction to the following would be greatly appreciated.

The VEBA sponsor in question is subject to ERISA.

There are more than 100 participants in the VEBA/plan.

5500s have been filed for prior plan years, and they have been accompanied by a qualified accountant's opinion.

Historically, the qualification of the accountant's opinion relates to the fact that the VEBA has never had an actuarial study done for funding purposes.

The lack of an actuarial study, in turn, relates to the fact that the employer has never gotten around to truly "funding" the VEBA (I think that is close to being the unusual circumstance referenced in your prior message). The VEBA was set up to "fund" a self-insured medical plan. Since its inception, however, the VEBA has only functioned as a conduit for paying claims. As medical claims have been made, the employer puts the money in the VEBA which turns right around and pays out the claims. Money sits in the VEBA for only a very short period. The VEBA, to me, seems largely useless.

Nevertheless, the VEBA is out there. The accountant is telling the client that the 2000 5500 now must be accompanied by an unqualified accountant's opinion, which the accountant now has to determined to mean that an actuarial study must be done.

The employer obviously does not want to pay for potentially expensive actuarial work that seems to have no practical purpose.

The question: May this employer file its 5500 the way it always has -- i.e., by filing it with the qualified accountant's opinion? Will the DOL reject the 5500? For prior years, the DOL has not objected to the filing of the VEBA's 5500s with a qualified accountant's opinion.

Any clear or even gut reaction you have to this circumstance would be appreciated.

Thanks again!!

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Hey Pete - A little public service is good for all of us.

I agree with all of your comments. I am curious why they have the VEBA, as it does not sound like it is doing any good and it is increasing their compliance costs.

The DOL Chief Accountant's office regularly states that they look at every single report filed with anything other than an acceptable opinion. They don't however choose to pursue an audit on each case. Thus, your client may have just gotten lucky in the past.

The right answer is to do the actuarial work and get a clean opinion, then terminate the VEBA (if feasible) since they aren't getting any benefit from it anyway. I would justify the cost of the actuary based upon the management information that you can get from this work. Realize, that I have seen many cases where the actuarial work involved to comply with SOP 92-6 is very modest. The plan may not have any substantial obligations and a simple claims lag study may be all you need.

If they just don't want to do this, they are assuming the risk of continuing to file as they have in the past. To get out of that risk, they need to reconsider why they have the VEBA. If they can, they should get rid of it.

Putting my ERISA hat back on, I do have to note that if the plan receives employee contributions that are not deposited through a 125 plan, they have to have the trust. This is because of the plan asset regulations. If that is the case, they need to add the 125 plan or come to grips with running the VEBA right (including the proper financial reporting.)


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Guest PeterBradley

Becky...thanks so much for your input. I greatly appreciate it. The client is most definitely looking to jettison the VEBA. But, in the meantime, the client obviously still needs to file the 5500s.


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