Non Discrimination Compliance

[Gary]

I know this is a DB Board, but since it is such an active board I thought I would make this unrelated inquiry here.

I was asked to prepare a proposal for a VEBA and one of the questions is "How much can it discriminate in favor of HCEs"?

For pensions I look to 401a4 and 410.

For welfare plans, the place to go is 419 (or at least one of the places)

So where does one go to educate oneself about VEBAs? And non discrimination? To my knowledge 501c9 presents VEBA information, but does that section and its regs address non discrimination?

Thanks much.

[WDIK]

I know this is a thread about "VEBA nondiscrimination", but I thought I would make this unrelated post about the NCAA Men's Basketball tournament here. I am always amazed at the number of close, competetive games, especially those that require one or more overtimes to decide the winner. This is the one sporting event that never seems to disappoint.

As a side note, there are a couple of older threads in the VEBA forum that reference some pertinent Code sections for nondiscrimination.

http://benefitslink.com/boards/index.php?showtopic=21151

http://benefitslink.com/boards/index.php?showtopic=9843

(Edited for spelling errors)

[Don Levit]

Gary:

For an excellent summary on VEBAs, go to:

http://www.irs.gov/irm/part7/ch10s12.html.

In regards to discrimination, what type of benefits are you dealing with?

Are they self insured or fully insured?

Don Levit

[Gary]

Don,

Regarding your comments.

Self-insured is likely the way it will be.

If it were fully insured we would probably use a 419 welfare plan since the earnings within policy would be tax deferred anyway.

With that said, I am not only curious about non discrimination guidance as stated in my post, b ut also prudent and acceptable welfare (or VEBA) benefit levels, such as post retirement medical, long term care insurance, life insurance.

Thanks much.

[Don Levit]

Gary:

The discriminationm rules for a VEBA depend on whether or not the benefits are deemed "income replacement benefits."

These benefits are designed to protect against a contingency that interrupts or impairs earning power.

Examples would be life insurance and death benefits, disability benefits, and severance benefits.

The safe harbor guidelines applicable to income replacement benefits provide that a benefit may be offered as a uniform percentage of compensation of employees covered by the plan. If highly compensated employees are offered a benefit that is a greater percentage of compensation, or if the benefit is offered with more favorable eligibility conditions to hces, the safe harbor guidelines will not be met.

Benefits that are not income replacement benefits include any benefits that are not provided as a substitute for wages during a period of interruption or impairment of earning power. Examples would include medical and dental benmefits. The uniform percentage of compensatiuon is not applied for these benefits. Instead, they must be offered in equal amounts under equal terms, eligibility requirements, and conditions, without regard to salary, position, or ownership interest.

Don Levit