Voluntary Employees Beneficiary Association Plan
Candlefocus EditorThe Internal Revenue Service (IRS) defines a VEBA as a “tax-exempt trust established to help employees pay for eligible medical expenses.” Employers must first obtain a letter of determination from the IRS in order for their plan to be recognized as a VEBA for federal income tax purposes. VEBAs should not be confused with qualified retirement plans as they are not subject to many of the same regulations.
VEBAs can be used to pay for a variety of eligible medical expenses, including copays, coinsurance, and out-of-pocket expenses for prescription drugs and doctor visits. Many employers offer VEBAs as a way to provide extra financial assistance to their employees and their families.
When an employer contributes funds to a VEBA, it is generally credited as a single contribution to the trust. Employees are not required to contribute to the plan. However, employers may choose to match employee contributions in order to encourage participation.
Although VEBAs are tax-exempt, employers must still comply with other regulatory aspects in order for their funds to qualify for the exemption. Generally, these regulations include making sure the trust is properly funded and contributions are documented. They also include ensuring that the funds are only used to pay for eligible medical expenses.
VEBAs provide employees with an additional financial safety net while also helping employers with costs associated with providing health benefits. While they may not be as widely used as some other employee benefit plans, VEBAs can still be part of an employer’s benefits package.