VEBA Set-up

[Guest TeriH]

We are looking to set up a VEBA for a client and I have a few questions that I have not been able to locate in all of my research.

First, is a trust required in setting up this type of plan? Some information states that it is, others do not.

Second, is a plan document required when setting up a VEBA?

Finally, is a separate account required for key employees?

Thank you in advance for the information.

[E as in ERISA]

The VEBA is the funding mechanism for the plan. The VEBA is a tax exempt entity under 501©(9). The employer's deductions are subject to the 419 rules on funding. And the related plan is subject to applicable rules for that type of plan.

See the IRS' training on VEBAs at http://www.irs.gov/pub/irs-utl/lesson5.pdf.

I have only seen VEBAs set up as trusts (I believe that it must be some form of legal entity in order to obtain tax exemption).

There should be a trust document for the VEBA. ERISA will generally require a plan document for any welfare benefits.

Section 419 requires separate accounts for key employees.

[GBurns]

Setting up a VEBA properly requires detailed knowledge and preferably some experience. Why not use an experienced professional?

[JanetM]

Katherine, the IRS link did not work.

[mbozek]

VEBAs are subject to nondiscrimination rules under IRC 505(B). VEBA can be set up as a nonprofit association under state law or a trust. Aslo VEBA must be approved as a TXO by IRS in order to operate.

[Ron Snyder]

Teri H-

A VEBA may either be a trust or a non-profit corporation as indicated by mbozek above.

A trust document is required to set up a VEBA. The plan provisions may either be incorporated in the trust or separate. They may even be in the form of insurance contracts.

Separate accounts for key employees are not required under VEBAs but may be required under welfare plans to which IRC sections 419 and 419A apply. In addition, amounts allocated to such separate acciounts may count as annual additions under IRC section 415.

G Burns is correct that you would be foolish not to employ a professional to set up a VEBA. And mbozek is correct that it must be submitted to IRS in order to claim tax-exempt status.

Finally, here is a link to the IRS' Exempt Organizations Handbook provisions relative to VEBAs: http://www.irs.gov/taxpros/display/0,,i1%3...3D22088,00.html