ALUW Brown Bag: Voluntary Employee Benefit Association (VEBA), October 6, 1999
Discussions are underway at the UW to allow employee groups to establish Voluntary Employee Benefit Association Medical Expense Plans (VEBA MEP) using retirement sick leave cash-out funds. (Please note, however, that this does not directly affect the January 1 sick leave buy-out for non-retirees.)
The Board of Regents will vote on the proposal on October 15. If it passes, as is likely, the schedule for further action is:
- October 22, employees to receive packets with information and ballot.
- October 25, begins two weeks of presentations.
- November 8, ballots due. No late ballots will be accepted. A simple majority is needed to accept or reject the proposal.
- December 1, VEBA would be effective if accepted.
Current Policy
The current policy is for employees to cash out 25% of accrued sick leave
subject to taxes upon retirement.
VEBA MEP
A VEBA MEP is a tax-exempt trust authorized by the Internal Revenue Service. At retirement, employees use their money in the trust to reimburse health care costs such as monthly medical and dental premiums and qualified expenses. The employee has to do no tax reporting as the trust takes care of it. The retiree submits a claim and is reimbursed by the trust. Besides monthly premiums, qualified expenses include medical, dental, and chiropractic claims; co-payments; up-front surgery payments; and Medicare expenses, among others. Retirees may not increase their trust amount from outside sources--once their funds are gone, they're gone--but their accounts will grown as a result of interest payments from fund investments.
The decision to put retirement sick leave cash-out funds in a VEBA MEP is governed by group vote rather than individual employee decisions.
The IRS Role
The IRS is very clear on what it considers a logical or appropriate group. For example, employees represented by a labor union are considered a group. The UW has several groups:
- Employees represented by labor unions
- Professional staff
- Librarians
- Non-represented classified staff
Each group votes, and their vote is binding: all members of the group must abide by the vote decision. A voting schedule may be established to allow groups to vote once a year, for a period of perhaps three years, to keep their VEBA MEP or return to the current policy. However, retirees would be bound by the decision in effect when they retired.
Funds
VEBA MEP offers three fund offerings. They are:
Fund # 1 - Conservative - Stable Value Fund
Fund # 2 - Moderate - Balanced Fund
Fund # 3 - Aggressive - Growth Fund
Fund # 1 is guaranteed interest. For more information, see the VEBA web site; the URL is included at the end of this message.
Eligible Dependents
Eligible dependents include the retirees spouse, dependent children and other dependents as defined by the IRS.
If retiree dies before VEBA MEP account is used, the surviving spouse or dependents continue to receive medical expense reimbursements until the account is used up.
Concerns
A change in benefit policies are often a cause for concern. Employees close to retirement already may have plans for their sick leave cash out. A voting schedule for keeping or changing VEBA MEP decisions also needs to be established.
Web sites for further information:
University of Washington's Benefits Office page
http://www.washington.edu/admin/benefits/veba.html
VEBA Trust web site