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VEBA/HRA 101 A New Innovative Alternative

VEBA/HRA 101 A New Innovative Alternative. Today’s Agenda. Introduction VEBA Applications GASB 45 Questions. Code Section 501(c)(9). Tax-Exempt Employee Benefits Trust. What is a VEBA?. A tax-exempt irrevocable trust arrangement Funds deposited by the employer on behalf of the employee

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VEBA/HRA 101 A New Innovative Alternative

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  1. VEBA/HRA 101 A New Innovative Alternative

  2. Today’s Agenda • Introduction • VEBA Applications • GASB 45 • Questions

  3. Code Section 501(c)(9) Tax-Exempt Employee Benefits Trust

  4. What is a VEBA? • A tax-exempt irrevocable trust arrangement • Funds deposited by the employer on behalf of the employee • Funds may be used to pay for current or future out-of-pocket health-care-related expenses • Timing and ability to access funds always based on the bargaining agreement

  5. Rev. Rul. 2002-41 & Notice 2002-45 Individual Medical Reimbursement Accounts

  6. What is an HRA? • Account-based health plan • Participants use HRA funds to cover qualified health-care expenses and premiums • Employer contributions, earnings, and withdrawals (claims) are exempt from taxes

  7. Two Separate Pieces Must Work Together • HRA • Rev. Rul. 2002-41 • Notice 2002-45 • Rev. Rul. 2005-24 • Rev. Rul. 2006-36 • Notice 2010-38 • Notice 2010-59 • Rev. Rul. 2010-23 • VEBA • IRC Section 501(c)(9) • Funding Source for Participant Accounts HRA VEBA

  8. VEBA Applications

  9. VEBA Characteristics • Separate legal entity • Irrevocable • Assets protected from creditors • Can fund Health Reimbursement Arrangement (HRA) individual accounts • Directed investments • Triple-dip tax-advantaged accounts

  10. Triple Tax Advantage

  11. What’s Possible with a VEBA? • Fund post-employment premiums and expenses • Retiree Medical Savings Accounts • Embed with High Deductible Health Plan for active employees • Consumer Directed Health Care • Hold health care “reserves” for future medical expenditures • GASB 45 pre-funding • Self-funded plan reserves

  12. Qualified Reimbursable Expenses • Qualified Expenses Reimbursed from Participant Account • Most Legitimate Expenses for Active Employees and Post-Employment Participants (See IRS Publication 502): • Non-Insured Medical and Dental Expenses • Prescription Drugs • Chiropractic, Acupuncture, Alternative Remedies • Eye Glasses, Contact Lenses, and Supplies

  13. Qualified Reimbursable Expenses • Post-Employment Insurance Premiums: • Medical, Dental & Vision – Post-Employment COBRA and Retiree • Medicare Parts B & D • Medicare Advantage Plans (Part C) • Medicare Supplement Plans – Medigap Coverage (HRA only) • Qualified Long-Term Care

  14. Funding Sources • Fringe Contributions • Function of Future Wage Increases • Recapture Strategies • Mandatory Employee Contributions • Accrued Sick/Vacation Time • Employee Contributions to Other Benefit Plans • Participation in High Deductible Health Plan (HDHP)

  15. Who is a good prospect? • Municipalities • Schools • Universities • Taft Hartley (love the idea that employer can’t take it away)

  16. Questions?

  17. Contact David Ritchie VP of VEBA Sales BPAS 425.330.5990 dritchie@bpas.com

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