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VEBA Termination - Small Amount of Remaining Funds

401 Chaos

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We have a client that is in the process of winding down a MEWA / VEBA and are trying to brainstorm a bit about how best to efficiently handle the remaining VEBA assets once all plan liabilities are satisfied.  It appears there may only be ~$250k left over for a VEBA that covered a number of different participating employers of varying sizes and who have now all gone in many different directions so it's not as if there is one or two employers that could easily orchestrate a premium holiday, etc.

While the trust can still get in touch with most all of the former participants, it seems trying to do anything along the lines of prepaying a portion of their new health or other benefits costs or trying to make distributions back to the former participants where possible will consume a lot of time and money and be an inefficient use of limited assets.  

Just curious if others have seen other VEBAs with limited surplus assets at termination find an acceptable and efficient way to address.


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  • 1 month later...

This is a knotty problem.  Under ERISA, a fiduciary's duty is to all participants. That includes those who have left as well as those who are remaining. And any one of them could sue you if you do anything other than distribute the funds to participating employees on a logical and equitable basis, presumably in the form of welfare benefits.
That said, so far all participants' expectations have been met, or will have been met. There is no reason to expect that any of them is likely to sue unless, of course, they get wind that you ended up with some extra funds.
Choices you may not have considered include: (1) Giving the excess funds to charity (Maui or Ukraine, for example); (2) Purchase some sort of welfare or fringe benefit program which can cover all participants (including those who have left).  I suspect that you could purchase a "travel accident", "air ambulance", "travel interruption" insurance  or some combination thereof, for all of the participants to cover them for the next 5 years, for example.

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To evaluate required or permitted ways to use the VEBA’s assets on a termination or dissolution, the VEBA trustees might consider, with other information, these documents:

the VEBA’s trust declaration (or other governing document);

the VEBA’s Form 1024 application for the Internal Revenue Service’s recognition of the VEBA’s Internal Revenue Code § 501(a) tax-exempt treatment;

26 C.F.R. § 1.501(c)(9)-4(d) https://www.ecfr.gov/current/title-26/part-1/section-1.501(c)(9)-4#p-1.501(c)(9)-4(d).

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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  • 4 weeks later...

Thanks to you both for the responses and apologies for mydelayed response.  I thought I set up to track but just checked back and realized I wasn't following and missed these posts.

As additional information, we've reviewed the VEBA Trust documents, MEWA plan provisions, Form 1024 application and a ton of IRS PLRs regarding distributions from terminating VEBAs, etc.  For better or worse, the terms in the trust / plan documents are fairly generic and basically require that the remaining funds be distributed / allocated as required by the VEBA rules.  Not surprising at all or anything counter to what we hope to do but we are still struggling with the best options.  Based on a review of the PLRs, we have considered a variety of alternatives, including possibly a combination of different alternatives if we thought we could get by with that.  We understand from the IRS that they are not currently providing PLRs regarding distributions from terminating VEBAs so the possibility of seeking a PLR on this matter (if time and cost made that a possibility) are currently unavailable.  Some of the alternatives under possible consideration include:

1.  Dividing up the remaining amounts based on typical objective formula of a participant's contribution to the trust over the last several years relative to the overall trust contributions and using that pro rata amount to pre-pay current group health insurance benefits for a couple of larger participating employers still in close contact and for whom premium holidays or premium payments could be fairly easily arranged.  (One problem here is some original employees have left so, per some of the PLR approaches, we might try to simply reallocate their portion among new current employees of the same employer group--i.e., among basically their replacement rather than trying to track down the departed employees and figure out where they are, if they are participating in a current plan, can we pay some of their benefits, should we just make a payment to them?

2.  Along the lines of Vebaguru's suggestion, purchasing some additional supplemental / fringe welfare insurance benefits for the remaining group of former participants not covered by alternative 1 (or maybe for the entire group of former participants if we did no combination) and handling the remaining amounts that way.  I guess we could negotiate with an insurer over how to use all or mostly all of the amount and line that up to an appropriate coverage period, etc.  While that seems to have the benefit of being most consistent with the terms of the trust and how terminating VEBAs looking to handle by the book in prior years have approached things (and so maybe the safest legally and from a fiduciary standpoint), It also seems to basically result in the purchase of benefits that most are unlikely to appreciate really and also to carry some significant administrative time and expense to track everybody down and arrange for some new benefit coverages when the whole idea of the trust was to get out of that business.  I think it also raises questions around how to allocate the funds among those paying different amounts, etc.  Could we just see what the total amount buys in terms of extended coverage for everyone and give everyone the same term of coverage or would we arguably need to allocate based on their contributions?  Under the rules, seems a reasonable argument might be made that we don't have to allocate that remainder pro rata if we are using to buy additional benefits for all but I suspect participants might question that.

3.  Something of a different alternative to 2, we have bounced around the idea of trying to use the funds to possibly provide some sort of health education / prevention / wellness / screening campaign focused generally among the former participants and others in their industry and geographic locale so it wouldn't necessarily be limited just to former participants but would generally be available to all of them and there could be targeted notices / information used to advertise availability and highlight particular concerns, etc.  The idea would be that we are generally providing health and welfare benefits of the type for which the trust / plan was established and focusing on the former participants but also providing something of a broader, charitable sort of benefit to others in their same industry to address some key selected health issues or concerns.  It should also allow the former participating employers to get some public benefit from use of the funds and to deploy them most efficiently without having to closely parse individual contributions / benefits amounts and ongoing benefit coverages.

4.  As also suggested by Vebaguru, there is some thought of donating the remaining amount to a charity the trustees select--hopefully one providing possible health benefits and/or social welfare benefits generally to those participating in the general industry in which the participating employers participate.  This would likely be the preferred choice by the trustees and I think the most efficient use of the funds generally but it also seems arguably the least defensible under the VEBA regulations and fiduciary requirements.  On the plus side, rather than just using the amounts for some general charitable organization or broad relief effort, the amounts might be steered to an organization providing general types of health care benefits intended (or similar social welfare benefits) but this would be for the general public and not specifically aimed at or limited to former participants.  Looking at some of the prior PLRs where this alternative was permitted (not a lot of them, really), it is difficult to get a full sense of all of the facts and circumstances but one aspect that appears to have been a key consideration in those is the length of time since the former participants participated and the degree of difficulty in tracking down participants, etc.  While we would have some difficulty and expense around that, it is not like the trust here has operated for many years or we have many years to go back.  It's more that the amount of money is so small, relatively speaking, that any need to dig in and track down and administer sort of exhausts the benefits.

Sorry this is so long.  I am not really expecting anybody to be able to weigh in definitively on any of the above alternatives but would be delighted for any general reactions or suggestions or thoughts on other avenues to consider.  Also, wanted to add to the topic in case others face a similar issue in the future.

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