Ron Snyder

This site has been quiet recently, what with IRS designating 419A(f)(6) plans as "potentially abusive tax shelters" and attacking on other fronts. However, now it appears that the House of Representatives has removed 419A(f)(6) reform from the African Trade and Opportunity Act, HR 434. Of course the Conference Committee could put it back in, but it appears that cash value life insurance inside 10-or-more employer plans may be safe for now.

This issue has not been finally resolved. However, you may wish to contact the DOL and ask for guidance. (This issue came up this past weekend at the meetings of the Tax Section of the American Bar Assoc. without an answer.) Try 202-622-6080 or 202-219-7006 (Ofc of Healthcare Compliance & Standards Administration). However, the easiest approach would be to file form M-1 (Annual Report for MEWAs) and attach a request for clarification of status based upon the information provided. If you don't have DOL Form M-1, go to the PWBA website, www.dol.gov/dol/pwba. [This message has been edited by vebaguru (edited 05-15-2000).]

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.

Can a VEBA be amended to a nonqualified (grantor) welfare benefit trust? It would lose its qualified status under IRC 501©(9), but the penalty for disqualification is that the trust's income is thereafter taxable. There is no equivalent to IRC 411(d)(6) (anti-cutback rules) which applies to welfare plans and no IRC 401(a)(2) (prohibition against reversion). There is a prohibition against private inurement under IRC 501©(9) which would be obviated by any amendment to the trust which took it out of that section anyway. The excess funds could still not revert to the employer without creating a 100% exceise tax under IRC 4976. But what could be done with them? They could be used for any permissible (welfare) purpose: used to pay health premiums, to provide retiree health benefits, to pay severance (or supplemental unemployment) benefits, to provide disability income benefits, etc. They could even be used to provide child care or a vacation facility for participants.[Edited by vebaguru on 09-01-2000 at 08:13 AM]

What does "Pension plans, of course, should have separate SPDs? We provide combined SPDs for paired defined contribution plans. We also use a single SPD for PEO firms, although for some purposes (like testing) each employer is considered separate. In that case, and in the case of multiple-employer welfare plans, we attach a single sheet which gives identification of the employer and of benefit levels provided or choices made.

If the change made to the trust itself, or to any other documents forming a part of the VEBA (such as the plan document, if separate) was material, you should file for a new letter of determination