VEBA/HRA 101 A New Innovative Alternative
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Transcript of VEBA/HRA 101 A New Innovative Alternative
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VEBA/HRA 101A New Innovative Alternative
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Today’s Agenda• Introduction• VEBA Applications• GASB 45• Questions
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Code Section 501(c)(9)
VEBAEstablished 1928
VVoluntary
EEmployees’
BBeneficiary
AAssociation
Tax-Exempt Employee Benefits Trust
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What is a VEBA?• A tax-exempt irrevocable trust arrangement• Funds deposited by the employer on behalf of the
employee• Funds may be used to pay for current or future out-of-
pocket health-care-related expenses • Timing and ability to access funds always based on the
bargaining agreement
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Rev. Rul. 2002-41 & Notice 2002-45
HRAEstablished June 2002
HHealth
RReimbursement
AArrangement
Individual Medical Reimbursement Accounts
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What is an HRA?
• Account-based health plan• Participants use HRA funds to cover qualified
health-care expenses and premiums• Employer contributions, earnings, and
withdrawals (claims) are exempt from taxes
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Two Separate Pieces Must Work Together
HRA• Rev. Rul. 2002-41• Notice 2002-45• Rev. Rul. 2005-24• Rev. Rul. 2006-36• Notice 2010-38• Notice 2010-59• Rev. Rul. 2010-23
VEBA• IRC Section
501(c)(9)• Funding Source
for Participant Accounts VEBA
HRA
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VEBA Applications
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VEBA Characteristics
• Separate legal entity – Irrevocable – Assets protected from creditors
• Can fund Health Reimbursement Arrangement (HRA) individual accounts
• Directed investments• Triple-dip tax-advantaged accounts
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Triple Tax Advantage
ContributionsEarningsWithdrawals
Income ReplacementPension401(k)
457401(a)403(b)
IRARoth
Expense ManagementHealth Savings Account
(HSA)VEBA-funded HRA
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What’s Possible with a VEBA?
• Fund post-employment premiums and expenses Retiree Medical Savings Accounts
• Embed with High Deductible Health Plan for active employees
Consumer Directed Health Care• Hold health care “reserves” for future medical
expenditures GASB 45 pre-funding Self-funded plan reserves
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Qualified Reimbursable Expenses
• Qualified Expenses Reimbursed from Participant Account• Most Legitimate Expenses for Active Employees and Post-
Employment Participants (See IRS Publication 502):– Non-Insured Medical and Dental Expenses– Prescription Drugs– Chiropractic, Acupuncture, Alternative Remedies– Eye Glasses, Contact Lenses, and Supplies
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Qualified Reimbursable Expenses
• Post-Employment Insurance Premiums:– Medical, Dental & Vision – Post-Employment COBRA and Retiree – Medicare Parts B & D– Medicare Advantage Plans (Part C)– Medicare Supplement Plans – Medigap Coverage (HRA only) – Qualified Long-Term Care
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Funding Sources• Fringe Contributions• Function of Future Wage Increases• Recapture Strategies
– Mandatory Employee Contributions– Accrued Sick/Vacation Time– Employee Contributions to Other Benefit Plans– Participation in High Deductible Health Plan (HDHP)
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Who is a good prospect?
• Municipalities• Schools• Universities• Taft Hartley (love the idea that
employer can’t take it away)
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Questions?