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VEBA trusts are tax-exempt employee benefit trusts. VEBAs were created by an Act of Congress in 1928 and are governed under IRC Section 501(c)(9). VEBA trusts have their own tax identification numbers and are separate legal entities from the sponsoring entity, affording plan sponsors asset protection from creditors. Earnings of the VEBA trust assets are free from taxation and must be used to fund eligible employee benefit plans.
Section 115 of the Internal Revenue Code is the Code Section providing tax exemption for governmental entities' normal business operations. Section 115 trusts can be established to fund eligible benefit plans as an essential function of the government. VEBAs and Section 115 trusts perform the same function relating to employee benefit plan funding.
VEBAs have been used for many decades in the private sector and Taft-Hartley Health & Welfare Benefit Funds. The private sector has commonly used VEBAs to pre-fund retiree health care benefit plans. Taft-Hartley Health & Welfare Benefit Funds are using VEBAs to hold assets for collectively bargained union benefit plans.
In both the Taft-Hartley and public sector markets VEBAs and Section 115 trusts are becoming popular funding mechanisms to not only fund health and welfare and retiree health care benefit plans but also serve as the funding source for individual postemployment healthcare savings plans.
Coupled with an HRA these types of plans allow for tax-free accumulation of assets to be used by the participant to pay for eligible medical expenses during active employment and/or during retirement as well as paying for postemployment health care premiums. Assets are daily-valued much like a retirement plan and claims are made similar to Medical Flexible Spending Accounts. This type of plan design can be coupled with a high-deductible health plan in a consumer-driven health plan strategy and/or can be established as a postemployment healthcare savings vehicle.
Genesis Employee Benefits has its founding roots in administering complex VEBA and Section 115 trusts. Launched in 2002 following the IRS HRA guidance, America's VEBA Solution has grown to be one of the leading VEBA and Section 115 administrators in the Nation today.
For more information about these types of plans please visit our America's VEBA Solution website.