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Post-Retirement Medical Benefits.
Where post-retirement medical benefits are provided, separate accounts must be maintained for key-employees. Any amount allocated to such an account is to be treated as an annual addition to a qualified defined contribution plan. Thus, if the employer maintains a defined contribution plan, the annual additions limit will be reduced proportionately to the amount contributed to the funding of the post-retirement medical benefits. However, the 15% limit is not affected.
United States DEPARTMENT OF LABOR. Health Plans & Benefits
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VEBA Taxation on Earnings
Section 512(a)(3)(E) provides that earnings on VEBA trust assets may be set aside if the amount does not cause total assets to exceed account limits. If employer contributions exceed the deductible amounts, the VEBA trust will be currently taxed on all of its earnings.
Postretirement Medical Benefit (401(h))
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Nondiscrimination Rules Applied
Since 1985, all VEBAs are subject to nondiscrimination rules under §505. The plan must categorize employees in order to provide benefits specific to each employee group. which does not discriminate in favor of highly compensated employees. For each class of benefits, such benefits must not discriminate in favor of highly compensated employees. In determining nondiscriminatory plan coverage, the following employees may be excluded:
(1) Those with less than three years of service;
(2) Those that have not attained age 21;
(3) Those who are seasonal or less than half-time employees; and
(4) Those that are subject to a collective bargaining agreement.
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Uniform Application
If a VEBA provides self-insured medical benefits or group life insurance, then the nondiscrimination rules of §105(h) or §79 apply. Section 505 has been amended by TRA ‘86 to define highly compensated employees as provided under §414(q).
Voluntary employees beneficiary association VEBA Wiki
Controlled Groups
VEBAs are also subject to the controlled business rules of §414. As a result, it will not be possible to establish a VEBA trust for only one controlled business if highly compensated employees are employed by such business and non-highly compensated employees are employed in another business.
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Termination
Upon termination of a VEBA trust by an employer, a distribution of assets to the participants is made based upon objective and reasonable standards which do not involve disproportionate payments to members of the prohibited group (Reg.§1.513(c)(9)-(3)(d)). The IRS has approved a distribution of assets used to fund life insurance benefits based on a uniform percentage of compensation (Private Letter Ruling 8425056)
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