PORTFOLIO

VEBAs and Other Self-Insured Arrangements (Portfolio 395)

Be a trusted advisor to your clients with Bloomberg BNA Tax Portfolios. This portfolio analyzes the tax and other legal considerations relevant to pre-funding employee “welfare benefits” such as life, medical, accident and other similar benefits. 

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DESCRIPTION

VEBAs and Other Welfare Benefit Funding Arrangements analyzes the tax and other legal considerations relevant to pre-funding employee “welfare benefits” such as life, medical, accident and other similar benefits.

 

 

 

Specifically, It describes the principal characteristics of and rules that apply to the different types of entities that may be used to fund such benefits, including voluntary employees' beneficiary associations (VEBAs) under §501(c)(9), trusts established by governmental entities under §115, nonexempt trusts, and captive insurance companies. It also addresses the rules that govern the tax deductibility of contributions to welfare benefit funds under §§419 and 419A.

 


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AUTHORS

Bloomberg BNA Portfolios are written by leading tax professionals who set the standard as leaders in their fields. The VEBAs and Other Welfare Benefit Funding Arrangements portfolio was authored by the following attorney.  

 

ANDREW W. STUMPFF

Andrew W. Stumpff, A.B received his J.D. from the University of Michigan Law School. He is a member of the Michigan State Bar, New York State Bar, American Bar Association (Section of Taxation) as well as an Instructor at the University of Michigan Law School and University of Alabama Law School.

 

 

 

 

 

Credentials /

 

Andrew W. Stumpff, A.B.: Washington University (Honors in Mathematics 1983); J.D., University of Michigan Law School (Article Editor of Law Review 1986); member Michigan State Bar, New York State Bar, American Bar Association (Section of Taxation); Instructor, University of Michigan Law School, University of Alabama Law School.

 


TABLE OF CONTENTS

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 “Employees”

5. Meaning of “Association”

6. Meaning of “Voluntary”

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

A. In General

B. Business Considerations

C. Tax Consequences


WORKING PAPERS

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

OFFICIAL

Statutes:

Regulations:

Revenue Rulings:

Cases:

UNOFFICIAL

Articles:

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