Definition of VEBA
How does a VEBA plan work?
What does a VEBA plan cover?
Definition of VEBA
A Voluntary Employees’ Beneficiary Association (VEBA) is a tax-exempt trust fund created by an employer or a group of employees to pay medical benefits and similar benefits for members and their eligible or designated beneficiaries.
How does a VEBA plan work?
VEBAs have been established for over 90 years, but legislation was proposed in the late 1960s. The final legislation was published in the federal register in 1981, helping to prevent discriminatory practices and clarify rules. VEBAs are common in certain industries, especially steel, utilities, telecommunications, and automotive manufacturing and their suppliers.
An employer or group of employees can create a VEBA. Companies typically manage and administer VEBAs, but sometimes a union representing the workers takes the lead. Although the name includes the word “voluntary,” indicating that you can choose whether or not to participate, the employer may sometimes have the option to require all employees to join if being a member does not harm the employee.
Generally, a VEBA account is funded through employer contributions, but it may also be funded through mandatory salary deferrals or vacation transfers, where a portion of your paid annual leave (such as vacation or sick days) is added to the VEBA.
Once a standard VEBA account has a balance of $1,000, you can open a basic VEBA investment account and transfer any additional funds into it. In this self-directed account, you can invest for your retirement by choosing from a portfolio of selected mutual funds.
Another notable feature of VEBA is that the funds in both your standard account and investment account are typically yours, regardless of whether you change jobs or retire. You will be able to continue withdrawing from your VEBA account to pay for qualified medical expenses or continue investing your VEBA funds.
What does a VEBA plan cover?
You can use your VEBA funds for a variety of expenses, although what is covered exactly varies by plan. Check your plan details to see what is covered. VEBA can provide life, sickness, and accident benefits or similar benefits, which may include:
- Accidental death and dismemberment benefits
- Lost wages due to illness or injury
- Deductible reimbursement
- Medical, dental, and vision care costs
- Health insurance expenses when transitioning between jobs or retiring (COBRA, Medicare, etc.)
- Medical expenses not covered by your private health insurance
- Qualified medical expenses, including those related to diagnosis, treatment, mitigation, and prevention of diseases, or affecting any structure or function of the body
- Child care
- Vacation pay and expenses
- Recreational expenses
- Job accommodation expenses
- Income maintenance payments
- Temporary living expenses
- Supplemental unemployment benefits (SUB)
- Severance pay
- Education, training, or course benefits
- Personal legal service payments
For example, suppose you wear glasses for myopia and pay for laser surgery to correct the condition. Health insurance typically does not cover this procedure, so it’s not surprising that you have the same condition. However, this surgery is considered a type of medical care according to IRS guidelines as it corrects a bodily disorder. This means you can submit a claim to your VEBA plan administrator and receive reimbursement within five to seven business days. In some cases, you may even receive a plan debit card and be able to use it to pay for eligible expenses directly.
Note:
Always keep your detailed receipts – you may be asked to provide proof of your qualified expenses to your plan administrator.
Key Takeaways
The Voluntary Employees’ Beneficiary Association (VEBA) plan is a trust fund approved by the Internal Revenue Service that helps employees pay for certain qualified medical expenses, insurance costs, health deductibles, and more. The Internal Revenue Service determines what types of medical expenses are qualified. Examples of qualified expenses include laser eye surgery for myopia patients and breast reconstruction after mastectomy due to cancer. A VEBA can be initiated and managed by your employer or colleagues. You can invest your VEBA funds for retirement once your account reaches a certain balance.
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Sources:
- Internal Revenue Service. “F. Selected Problems of Voluntary Employees’ Beneficiary Associations (VEBAs).” Page 1. Accessed Nov. 4, 2021.
- Internal Revenue Service. “F. Selected Problems of Voluntary Employees’ Beneficiary Associations (VEBAs).” Page 2. Accessed Nov. 4, 2021.
- IRS. “VEBA Reference Guide.” See “Are life, sick, accident, or other similar benefits provided to members?” Accessed Nov. 4, 2021.
- Cornell Law School Legal Information Institute. “26 CFR § 1.501(c)(9)-3 – Voluntary Employees’ Beneficiary Associations; Life, Sick, Accident, or Other Benefits.” Accessed Nov. 4, 2021.
- VEBA.org. “Claims: How To File a Claim.” Accessed Nov. 4, 2021.
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