VEBA

[Guest jmc51]

A VEBA that is a MEWA wants to start an insurance agency. I have concerns regarding the prohibited transaction rules of ERISA and also tax law. This arrangement will qualify under PTE 84-24 so long as the VEBA does not exercise influence over management. The VEBA will own a minority share of the private stock of the insurance agency (for-profit corporation). To avoid the sharing of commissions, the insurance agency can declare dividends on its stock to get $ back to VEBA.

Now the concern: VEBA wants to make a capital contribution to the insurance agency. This appears to be a prohibited transaction under ERISA because the plan is transferring assets to a party in interest. I cannot find an exemption for this transaction under DOL guidance. Additionally, I have concerns that the transfer of assets by VEBA to insurance agency constitutes a inurement not permitted under VEBA regulations.

Anyone have any thoughts?

[Ron Snyder]

The whole transaction does not pass the smell test. A VEBA can own an insurance agency (as a majority or minority owner). The earnings from such ownership will be subject to UBIT as unrelated business taxable income.

It can even do business with the insurance company it owns. The problem occurs if another owner of the insurance agency, who would necessarily be a joint venturer with the VEBA, obtains any income from any transactions with the VEBA. It is clearly a prohibited transaction.

The issue you raise, re: a capital contribution. I share your concerns, although not for the same reasons. If the agency were 100% owned the transfer would be fine. The implication is that the transaction is not for the benefit of the VEBA but for the benefit of the agency and its primary owner(s).

It could also constitute prohibited private inurement.