tailieunhanh - Lecture Employee benefits and retirement planning - Chapter 59: VEBA welfare benefit trusts

This chapter covers VEBAs (Voluntary Employees Beneficiary Associations). A VEBA is used to provide employee benefits in the future. After discussing advantages and disadvantages, the chapter moves to VEBA design issues and the focus is on coverage and nondiscrimination issues. | What is it? A type of fund into which employers make deposits that will be used to provide specified employee benefits in the future Copyright 2009, The National Underwriter Company When is it indicated? When employer wants to: Provide benefit security for all covered employees by placing funding amounts in a trust that is for the exclusive benefit of employees and beyond reach of company creditors Accelerate deductibility of employee benefit costs by pre-funding, where permissible Copyright 2009, The National Underwriter Company Advantages Can use certain employer-funded whole life insurance policies to fund death benefit (however, DOL and some state regulators may challenge this practice) Use of irrevocable trust enhances benefit security for individual employees Copyright 2009, The National Underwriter Company Disadvantages Installation and administration of VEBA can be complex and costly With multiple-employer plan, employer loses some control over plan design, investments, and tax consequences Careful plan design needed to avoid overfunding and potential loss of funding intended for owner-employees Copyright 2009, The National Underwriter Company VEBA Design Issues: Who Must be covered? In general: Must cover more than one employee Best to cover all employees; excluding employees makes plan subject to overlapping, complex, unclear rules designed to prevent discrimination Each plan funded through a VEBA may have its own coverage requirements with various consequences for failing to have broad coverage Plans providing disproportionate share of benefits to owner-employee will generally not be tax-exempt Copyright 2009, The National Underwriter Company VEBA Design Issues: What kinds of benefits can be provided? Permitted VEBA benefits: Life insurance before and after retirement Other survivor benefits Sick and accident benefits Other benefits (. vacation, recreation, some severance benefits, unemployment and job training benefits and . | What is it? A type of fund into which employers make deposits that will be used to provide specified employee benefits in the future Copyright 2009, The National Underwriter Company When is it indicated? When employer wants to: Provide benefit security for all covered employees by placing funding amounts in a trust that is for the exclusive benefit of employees and beyond reach of company creditors Accelerate deductibility of employee benefit costs by pre-funding, where permissible Copyright 2009, The National Underwriter Company Advantages Can use certain employer-funded whole life insurance policies to fund death benefit (however, DOL and some state regulators may challenge this practice) Use of irrevocable trust enhances benefit security for individual employees Copyright 2009, The National Underwriter Company Disadvantages Installation and administration of VEBA can be complex and costly With multiple-employer plan, employer loses some control over plan design, .