VEBA and Disability Plan

[Guest paybdb]

Our company has a VEBA that was established pursuant to a CBA in connection with a self-funded long term disability plan . The company must pre-fund 12 months worth of benefits for a newly disabled participant. Once a quarter, the company draws down from the VEBA the equivalent of the past three months worth of payments that have been funded from general assets. This amount goes back into general assets. For example:

Joe starts monthly disability payments 1/1/06. His benefit amount has been calculated to be $1,000/month. The company pre-funds $12,000 to the VEBA for the first twelve months of his disability payments. Each month, his payment is made from general assets. At the end of the first quarter, the company requests that $3,000 be paid from the VEBA back to the company.

Does this represent a prohibited transaction? This plan has been audited since the VEBA has been established but I don't see where this has been raised as a potential issue. Any input is appreciated!

Thank you!

[Ron Snyder]

It would not be a prohibited transaction, but might be an impermissible reversion. However, the company is being used as the disbursing agent for the VEBA. So long as the employer doesn't keep the funds, the arrangement should be okay.