Multiemployer Plan and VEBA employment-related bond

[MAM08]

Our client is a collectively bargained multiemployer health and welfare Plan and VEBA that has limited participation to bargaining units represented by a single local union and non-bargaining unit employees of their contributing employers. It covers participants engaged in a number of industries in a relatively limited geographical range (primarily several contiguous counties).

The client has recently received an overture from a bargaining unit affiliated with an entirely different international union which would like to join the Plan. If the trustees accepted this group, it would be the first unit not affiliated with the sponsoring union. The new group is engaged in one of the industries currently covered by the Plan and within the Plan’s geographic region.

If this new group is accepted, would this jeopardize the Trust’s VEBA status because of the absence of an employment-related bond?. I've been unable to find any IRS guidance on this question. I'm stuck on Treas. Reg. 1.501©(9)-2(a)(1) which reads:

“Typically, those eligible for membership in an organization described in section 501©(9) are defined by reference to a common employer (or affiliated employers), to coverage under one or more collective bargaining agreements (with respect to benefits provided by reason of such agreement(s)), to membership in a labor union, or to membership in one or more locals of a national or international labor union. For example, membership in an association might be open to all employees of a particular employer, or to employees in specified job classifications working for certain employers at specified locations and who are entitled to benefits by reason of one or more collective bargaining agreements.”

On the one hand, the regulation could be read to say that either coverage under any CBA or membership in a labor union will suffice as an employment-related bond. But I wonder if this is too broad a reading and some other employment-related bond (e.g., common union affiliation, common industry) is required. Another way to ask this, is whether any Plan provided for in a CBA will automatically satisfy the employment-related bond requirement? Thanks for any input.

[Guest jmc51]

I have to direclty deal with the issue you pose. Could not find any definitive guidance and was left with your question. To get around the potential issue, we actually converted the VEBA to a ©(5) and got IRS approval. We have since converted a few ©(9) health and welfare funds to ©(5) because it provides a bit more grey area and the only requirement is coverage under a CBA.