Don Levit

steelerfan: you are correct about post-retirement medical benefits not taking into account inflation. If this was a qualifying employee-pay-all VEBA, UBIT would not apply, for there are no limits on the set-asides. In addition FAS 106 would be inapplicable. Don Levit

steelerfan: As a 501©(9), and a non commercial insurer, the VEBA has the opportunity to provide unique products not available through commercial insurers. So, creativity and innovation is encouraged. Why would you want UBIT to be a consideration anyway? Typically, UBIT means the trust is overfunded. Don Levit

Just me: I believe you are correct in your assumptions. There is so much you can do with VEBAs, as we have discussed previously, in that they are non commercial insurers. For instance, instead of providing equal benefits to all, you may want to vary them in proportion to one's contributions. You may even want to structure the benefits like a defined-contribution retirement plan, in which if one uses benefits in one year, he has lower benefits the following year. I sure hope you continue on your path, and even more importantly, find the administrative complexities not much more burdensome than a 401(k). Don Levit

Thanks, LTA. I will keep your post as a reminder. Don Levit

John: When you wrote "if the state law says to be a group plan subject to some state law requirement, the arrangement must be an ERISA plan," how do you come to that conclusion? ERISA plan is a federal definition, not a state definition. Don Levit

John: I don't see this as a preemption issue. State laws apply to fully insured plans. The question is which state laws - group or individual? I contend that whether or not group state laws apply, depend on if the policy is part of an ERISA plan. If it is not part of an ERISA plan, how can an individual policy be subject to the state's group laws? Don Levit

George: The VEBA is established by the employer. The VEBA can be controlled by its participants. Don Levit

George: Are you saying that a fifth circuit court ruling should be disregarded when the Texas Department of Insurance issues a bulletin regarding a similar issue? Whether or not an ERISA plan is established has a direct impact on if a group insurance plan has been established. Is it possible to have a group plan which is not an ERISA plan? Don Levit

George: You are correct about states' insurance law. Texas, in particular, had a bulletin issured by the Department of Insurance stating that any payments made from a cafeteria plan subjects an individual policy to the group insurance laws. The reason I bring up federal court cases, is that I have several which have dealt with the issue of whether or not an ERISA plan was established by virtue of an employer paying part or all of the premium on an individual policy. Not one court case that I have seen has come to the conclusion that an employer paying part or all of the premium for an individual policy, in and of itself, establishes an ERISA plan. I would think that the state departments of insurance would take that into consideration before passing their edicts. Don Levit

If this is a new plan for retiree medical benefits, I don't see any problems. Are you concerned about employer liability, should the VEBA go bankrupt? Why not set this up as an employee-pay-all VEBA from the beginning? Don Levit

John: Ah, correct. I have not come across a court case in which the employer who pays the premium, establishes a group policy, without other evidence of employer involvement. I thought Revere v. Harabe would do it, but that was not the case. Don Levit

John: Then if the employer does not give the employee a choice, and merely pays the premium on an individual policy, there is no problem with discrimination, taxation, or the possibility of group coverage (assuming the employer has no involvement other than paying the premium)? Don Levit

George: You are right. The question was incorrectly stated. Do you know of an option outside bankruptcy, that an employer could unilaterally change retiree benefits that have vested? Don Levit

George: I don't want to reinvent the wheel either. But, apparently, there are not enough wheels out there to serve the small employers. If a state applied the mandatory surplus and reserve requirements, without considering the actual amount at risk, they could very well exceed the set asides for VEBAs allowed by federal law. This may not only give departments of insurance pause from doing so, but also provide them a legitimate opportunity to use the laws as guidelines, rather than as commandments. Don Levit

George: We would have to analyze the plans to see if benefits could legally be changed, as well as the employee contributions. Apparently, the employers cited could legally, unilaterally make the changes to retiree health benefits. I asked for a federal court case, for I am curious if an employer who could not legally make these type of changes, was given an okay by a federal court. Don Levit

vebaguru: Can you cite a federal court case in which vested retiree medical benefits were terminated by an employer who was not in bankruptcy? Don Levit

vebaguru: I am interested in small employers in the same line of business combining to self-fund health benefits. I don't think it is necessary for 50 states to be involved to get the law of large numbers working for small employers. Three contiguous states would seem to suffice. In addition, the three state area (at the most) gives a bit more intimacy to the arrangement, such that participants may not feel they are one small piece of a big conglomerate. I envision the trustees and the participants to have more rapport than an insurance company home office and its policyholders. The licensing of the VEBA would require state departments of insurance to use their discretion in applying the laws on the books. By that I mean this would be a non commercial insurer, which is not selling to the public, and would have lower liabilities than a commercial insurer. In addition, the plan I envision would max out at $50,000 per family. Don Levit

vebaguru: Thanks for your reply. This discussion is really not about my particular plan design, and how creative or innovative it may be. Rather, it is about non commercial insurers having the ability to offer innovative plans. I believe the VEBA is one example of a non conmercial insurer. I also think the small employer market (those small employers in the same line of business across 3-contiguous states) has a real need for this type of non commercial insurer. If the VEBA was to be properly licensed, and monitored, we could provide some real competition for the commercial insurers. Don Levit

vebaguru: You are correct that employers can, generally, change, modify, or terminate benefits. However, if the plan explicitly vests medical benefits, to terminate those benefits would violate the plan. Are you suggesting that regardless of the wording in the plan, that employers can even modify a vested medical benefit? Can you cite a federal court case in which this was decided? Don Levit

vebaguru: I agree with you on the forfeitability of benefits. We were discussing before about an individual savings account dedicated to medical benefits. This account is subject to forfeiture if the employee dies before using up the benefits. If no eligible dependents remain, the balance is forfeited to the VEBA. However, if the beneficiaries can also collect the balance as a death benefit, the funds are not subject to forfeiture, and thus, ineligible as a dual medical-death benefit. Agree or disagree? Don Levit

vebaguru: Thanks for providing these links. Can you tell us more specifically how these plans are unique from what we see in the marketplace? Also, are you aware of any organizations that are working in the small employer market, specifically, those small employers in the same line of business across 3 contiguous states? Don Levit

John: Thanks for asking. The type of plan I envision is one in which benefits build over time. The idea is to accumulate between $25,000 and $50,000 of benefits in 2-5 years. Benefits would vary in direct proportion to contributions made, less claims incurred. The reason I am thinking of $25,000-$50,000 of benefits is that the price break seems to be the largest in that area. For with $25,000-$50,000 of coverage, and the VEBA plan as primary, the traditional group plan's deductible would be raised to start where the VEBA benefits end. Using one's individual savings account and the VEBA as insurer for all the particpants, there are many innovative ways to maximize benefits. Don Levit

John: Thanks for your very informative and detailed response. In this particular situation, where an employee brings an individual policy to his employer, it seems that the the employer has not exceeded the bounds of the permissible interaction with the program under the safe harbor. When you consider that the employee is not being reimbursed by the employer, the employer's level of involvement is even less. I find DOL Opinion Letter 96-12A to be very helpful, in that it seems to differentiate from providing tax-favored treatment and whether a benefit is contained in section 3(1) of ERISA. I found the Hrabe v Paul Revere decision to be disappointing, although enlightening. Is there any way you could E-mail that decision to me? Don Levit

John: Thanks for your reply. I am not looking at the employer making tax-free reimbursements to employees for paying premiums on individual health policies. I am looking at an employee-pay-all situation using the cafeteria plan (employee-pay-all according to your pointing that out from the DOL's perspective). And, while it may be a benefit that ERISA specifically covers (health benefits), I am assuming that if the particular benefits meets the DOL's 4 guiodeline safe harbor, then the medical policy would be excluded from ERISA coverage. If true, the question would still remain that the individual medical policy (which the employee brought to his employer) would have to meet the cafeteria plan guidelines. Which specific cafeteria plan guideline (citation) may this medical policy not satisfy? Even if satisfied, you then mentioned there may be other federal laws this individual medical policy may violate? What specific laws, including citations, may this individual medical policy violate? Don Levit

John: I am saying that one of the distinguishing characteristics between a commercial insurer and a non commercial insurer, according to the IRS, is that a non commercial insurer offers products which are not provided by commercial insurers. Don Levit