VEBAs and Other Self-Insured Arrangements, David S. Dunkle, Esq., of Cabaniss, Johnston, Gardner, Dumas & O'Neal, analyzes the business, tax, and legal considerations of self-insuring or self-funding group employee benefits, such as life, sick, accident, and other similar benefits. It examines in detail the complex tax rules applicable to welfare benefit funds and explains the different treatment of tax exempt and nonexempt employee benefits trusts.
Under a self-insured arrangement, an employer typically bears the liability of paying a certain level of benefits under the plan and purchases excess or stop-gap insurance to protect against catastrophic losses or unacceptable risks.A large employer, however, frequently sponsors a full self-insured plan and retains the entire risk of paying all plan benefits or may transfer that responsibility to the union covering its employees along with a fund to cover the expenses of the plan for an extended period to time.
VEBAs and Other Self-Insured Arrangements describes in detail the organizational and operational requirements of §501(c)(9) trusts (VEBAs) as well as the income tax treatment of contributing employers and participating employees. In addition, the Portfolio considers the business reasons for the change to self-insurance from traditional insurance and describes various alternatives to effect the change.
Conventional insurance, either on a pooled or experience-rated basis, is no longer the norm and employers need to understand the business, tax, and legal considerations involved in maintaining their self-insured employee benefit plans or when converting a conventionally insured program to a self-insured alternative. Also, employers need to carefully structure a transfer of a health plan to a VEBA administered by a union.
Specific topics that can be found in the Portfolio include welfare benefit plans, disability benefits, limits on ERISA's Preemption, excise taxes, and more.
The Worksheets include a self-insured plan, a disability plan, an administrative services agreement, and a trust agreement designed to qualify under §501(c)(9).
VEBAs and Other Self-Insured Arrangements allows you to benefit from:
This Portfolio is part of the U.S. Income Portfolios Library, a comprehensive series that includes more than 200 Portfolios, which cover every federal tax topic with expert, in-depth analysis, and offer commentary on a wide range of federal taxation topics, including Compensation Planning, Deductions and Credits, Partnerships and Corporations, Special Pass-Through Entities, Corporate Reorganizations, Real Estate, Procedure and Administration, and more.
Detailed Analysis
I. Self-Insured Employee Benefits
A. In General
1. Scope of Portfolio
2. Growth of Self-Insurance
3. Section 501(c)(9)
B. Business Considerations
1. Advantages
2. Disadvantages
C. Alternatives to Fully Insured Employee Benefits
1. Fully Self-Insured Plans (Including Administrative Services Only Plans)
2. Self-Insured Plans with Stop-Loss Insurance
3. Self-Insured Plans with Limited Liability Insurance
4. Minimum Premium Plans
5. Cost-Plus Stop-Loss Insured Plans
6. Multiple Employer Welfare Plans
7. Conclusion
II. Income Tax Treatment of Employees
A. General
1. Types of Welfare Benefits
2. Employer Contributions to Welfare Benefit Plans
3. Nontaxability of Welfare Benefits to Employees
a. Medical Benefits
b. Group Term Life Insurance Benefits
c. Disability Benefits
d. Other Benefits
4. Special Considerations of Partners and Certain Shareholder-Employees of S Corporations
5. Tax Reporting
B. Deductibility of Employee Contributions
III. Deductibility of Employer Contributions and Reserve Limits
A. Overview of General Principles
B. Payments Made from the Employer's General Funds
C. Employer Payments to Welfare Benefit Funds
1. In General
2. Welfare Benefit Fund Defined
3. Welfare Benefit Defined
4. Exception for 10-or-More Employer Plans
5. Deduction Limits
a. In General
b. Qualified Cost
c. Additions to Qualified Asset Account
(1) Additional Account Limits for Post-retirement Medical and Life Insurance Benefits
(2) SUB or Severance Pay Benefits
(3) Disability Benefits
(4) Aggregation of WBFs
(5) Separate Accounts for Key Employees
(6) Collectively Bargained and Employee Pay-All Plans
(7) Transitional Rule for Existing Excess Reserves
(8) Carryover of Excess Contributions
(9) Safe Harbor Reserve Limits
(10) Bona Fide Association Plans
d. Special Rule for First Taxable Year
e. Interrelationship of Other Deductibility Statutes
f. Rules for Contribution of Facility
6. Unrelated Business Taxable Income of Fund
7. Excise Taxes
8. Exclusion for Certain Federal Subsidies for Prescription Drug Plans
IV. Section 501(c)(9) - Voluntary Employees' Beneficiary Associations (VEBAs)
A. General Description
B. Statutory Requirements
C. Regulations
1. General Requirements
2. Membership
3. Nondiscrimination Requirements
4. Meaning of “Employeesâ€
5. Meaning of “Associationâ€
6. Meaning of “Voluntaryâ€
7. Control Requirement
8. Recipients of Benefits
9. Permissible Benefits
a. Life Benefits
b. Sick and Accident Benefits
c. Other Benefits
d. Nonqualifying Benefits
10. Inurement Prohibited
11. Recordkeeping
12. Withholding
D. Exempt Status of VEBA
1. Effect of Exempt Status
2. Obtaining Exempt Status
3. Annual Returns
4. Excise Tax on Prohibited Tax Shelter Transactions
E. Applicability of ERISA
1. General
2. Reporting and Disclosure
3. Participation and Vesting
4. Funding
5. Fiduciary Responsibility
6. Enforcement
F. Relevance of Labor Law
G. Relevance of State Law
1. State Insurance Laws
2. Preemption by ERISA
3. Limits on ERISA's Preemption
H. Using VEBAs to Resolve Litigation over Funding Retiree Health Benefits
V. Nonexempt Trusts
C. Tax Consequences
Working Papers
Table of Worksheets
Worksheet 1 Sample Tax–Exempt Trust for Employee Welfare Benefits.
Worksheet 2 Sample Directors' Resolution Adopting Tax–Exempt Trust.
Worksheet 3 Sample Trust for Employee Welfare Benefits Intended to be a Grantor Trust Under Which the Income Should be Taxed to the Corporation.
Worksheet 4 Sample Directors' Resolution Adopting Grantor Trust.
Worksheet 5 Sample Self–Insured Employee Health Care Plan.
Worksheet 6 Sample Aggregate Stop–Loss (Excess) Insurance Agreement.
Worksheet 7 Sample Self–insured Weekly Disability Benefits Plan.
Worksheet 8 Sample Self–insured Long Term Disability Plan.
Worksheet 9 Sample Administrative Services Agreement.
Worksheet 10 Sample Minimum Premium Agreement.
Worksheet 11 Conference Report to the Deficit Reduction Act of 1984, H.R. Rep. No. 861 (Conf.), 98th Cong., 2d Sess. 1984, pp. 1154–1160 (relating to limits on the deduction of contributions to funded welfare benefit plans).
Bibliography
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Statutes:
Regulations:
Revenue Rulings:
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