Tuesday, April 17, 2012

VEBA: Where you want to be

Well, maybe.

I recently attended a class on health insurance alternatives for early retirees. These are folks who are too young to qualify for Medicare, but old enough that the 18 months of COBRA just isn't enough. Some employers offer their retirees health insurance, most don't, and that was the purpose of the class.

It was interesting enough (certainly better than our last outing!), and I took several pages of notes. Unfortunately, the most intriguing piece was also the one least discussed; there was a very good reason for this (the carrier doesn't offer them here), but my interest was piqued, and so I decided to do a little digging.

VEBA's the acronym for the unwieldy "Voluntary Employee Beneficiary Association." Briefly, a VEBA offers a way for employers to offload their retiree health plans while maintaining minimal control of them (aka purse strings). Employers (well, former employers, really) set up and fund a trust, the purpose of which is to pay for specific insurance products (typically retiree health insurance plans). The donations (payments) are generally tax deductible, and the requirements seem pretty tame.

The VEBA tax exemption comes via the Internal Revenue Code (501(c)(9) to be precise); once the money's deposited in the trust, though, the employer gives up control of it to the Trust's administrator.

VEBA plans can be set up as either Defined Benefit or Defined Contribution plans, and often include a Health Reimbursement Arrangement (HRA). Those that include the HRA are called "Hybrid VEBA" plans.

Now you know.

[Hat Tip: Anthem]
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