Voluntary Employee Beneficiary Association
Encyclopedia
A voluntary employees' beneficiary association (VEBA) is a form of trust fund
permitted under American
tax law
whose sole purpose must be to provide employee benefit
s. Among the types of benefits with a VEBA may provide are accident insurance benefits
, childcare
costs, employee continuing education
, the cost of legal services, life insurance
benefits, severance pay
, supplemental unemployment benefits, sick leave
pay, training benefits, and vacation
pay. A VEBA cannot, however, provide commuter benefits
, miscellaneous fringe benefits
, or retiree income
. The plan may pay benefits to employees, their dependents
, or their designated beneficiaries
, or to disabled
, laid-off
, or retired
former employees.
The organization must also meet the following additional requirements:
Employer contributions to a VEBA are tax-deductible
Beneficiaries of a VEBA must have an employment-related common bond (such as a common employer), be covered by a collective bargaining agreement, or belong to a labor union
. However, if multiple employers share the same line of business and the same geographic area, they are considered to share the "common bond" specified by the law.
A major use of the concept was implemented in 2007 when the United Auto Workers
agreed to form VEBAs for their workers at the Big Three automobile manufacturers, thus relieving the companies from carrying the liability for their health plans on their accounting books. The UAW Retiree Medical Benefits Trust, with more than $45 billion in assets as of June 2010, is the world's largest VEBA.
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
permitted under American
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
tax law
Tax law
Tax law is the codified system of laws that describes government levies on economic transactions, commonly called taxes.-Major issues:Primary taxation issues facing the governments world over include;* taxes on income and wealth...
whose sole purpose must be to provide employee benefit
Employee benefit
Employee benefits and benefits in kind are various non-wage compensations provided to employees in addition to their normal wages or salaries...
s. Among the types of benefits with a VEBA may provide are accident insurance benefits
Accidental death and dismemberment insurance
In insurance, Accidental Death and Dismemberment is a term used to describe a policy that pays benefits to the beneficiary if the cause of death is due to an accident.-Accidental Death:...
, childcare
Childcare
Child care means caring for and supervising child/children usually from 0–13 years of age. In the United States child care is increasingly referred to as early childhood education due to the understanding of the impact of early experiences of the developing child...
costs, employee continuing education
Continuing education
Continuing education is an all-encompassing term within a broad spectrum of post-secondary learning activities and programs. The term is used mainly in the United States and Canada...
, the cost of legal services, life insurance
Life insurance
Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger...
benefits, severance pay
Severance package
A severance package is pay and benefits an employee receives when they leave employment at a company. In addition to the employee's remaining regular pay, it may include some of the following:* An additional payment based on months of service...
, supplemental unemployment benefits, sick leave
Sick leave
Sick leave is time off from work that workers can use during periods of temporary illness to stay home and address their health and safety needs without losing pay. Some workplaces offer paid sick time as a matter of workplace policy, and in few jurisdictions it is codified into law...
pay, training benefits, and vacation
Vacation
A vacation or holiday is a specific trip or journey, usually for the purpose of recreation or tourism. People often take a vacation during specific holiday observances, or for specific festivals or celebrations...
pay. A VEBA cannot, however, provide commuter benefits
Employer Transportation Benefits in the United States
An employer may provide transportation benefits to their employees that are tax free up to a certain limit. Under the US Internal Revenue Code section 132, the qualified transportation benefits is one of the eight types of statutory employee benefits that are excluded from gross income...
, miscellaneous fringe benefits
Employee benefit
Employee benefits and benefits in kind are various non-wage compensations provided to employees in addition to their normal wages or salaries...
, or retiree income
Pension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
. The plan may pay benefits to employees, their dependents
Dependant
This article is related to law. For the personality trait, see Dependent Personality DisorderA dependant or dependent is a person who relies on another as a primary source of income...
, or their designated beneficiaries
Beneficiary
A beneficiary in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. For example: The beneficiary of a life insurance policy, is the person who receives the payment of the amount of insurance after the death of the insured...
, or to disabled
Disability
A disability may be physical, cognitive, mental, sensory, emotional, developmental or some combination of these.Many people would rather be referred to as a person with a disability instead of handicapped...
, laid-off
Layoff
Layoff , also called redundancy in the UK, is the temporary suspension or permanent termination of employment of an employee or a group of employees for business reasons, such as when certain positions are no longer necessary or when a business slow-down occurs...
, or retired
Retirement
Retirement is the point where a person stops employment completely. A person may also semi-retire by reducing work hours.Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions don't allow the person to...
former employees.
The organization must also meet the following additional requirements:
- It must be a voluntary association of employees;.
- Substantially all of its operations are for the purpose of providing benefits;
- Its earnings may not benefit of any private individual, organization, or shareholder other than through the payment of benefits;
- It must be controlled by its members, in whole or part by their trusteeTrusteeTrustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
s, or by an independent trustee; and- It must be nondiscriminatoryDiscriminationDiscrimination is the prejudicial treatment of an individual based on their membership in a certain group or category. It involves the actual behaviors towards groups such as excluding or restricting members of one group from opportunities that are available to another group. The term began to be...
in the payment of its benefits (unless it was established pursuant to a collective bargainingCollective bargainingCollective bargaining is a process of negotiations between employers and the representatives of a unit of employees aimed at reaching agreements that regulate working conditions...
agreement).
- It must be nondiscriminatory
Employer contributions to a VEBA are tax-deductible
Tax deduction
Income tax systems generally allow a tax deduction, i.e., a reduction of the income subject to tax, for various items, especially expenses incurred to produce income. Often these deductions are subject to limitations or conditions...
Beneficiaries of a VEBA must have an employment-related common bond (such as a common employer), be covered by a collective bargaining agreement, or belong to a labor union
Trade union
A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
. However, if multiple employers share the same line of business and the same geographic area, they are considered to share the "common bond" specified by the law.
A major use of the concept was implemented in 2007 when the United Auto Workers
United Auto Workers
The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, better known as the United Auto Workers , is a labor union which represents workers in the United States and Puerto Rico, and formerly in Canada. Founded as part of the Congress of Industrial...
agreed to form VEBAs for their workers at the Big Three automobile manufacturers, thus relieving the companies from carrying the liability for their health plans on their accounting books. The UAW Retiree Medical Benefits Trust, with more than $45 billion in assets as of June 2010, is the world's largest VEBA.