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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
From Spencer's Benefits Reports: Until this past year, bankruptcy was the most common reason for establishing stand-alone retiree medical voluntary employees’ beneficiary associations (VEBAs), according to a study conducted by the Segal Company.
Stand-alone VEBAs are less common that company-run VEBAs, Segal noted in its Winter 2008 survey report, Study of Retiree Health VEBAs. However, as reported last year, major automobile makers negotiated with the United Auto Workers (UAW) to shift the responsibility for their retiree medical benefits from the companies to UAW-managed stand-alone VEBAs. The automakers agreed to contribute an initial, and in some cases ongoing, amount to fund the VEBAs.
This turn of events sparked renewed interest in VEBAs, according to Segal. The 25 VEBAs that were studied represent a significant proportion of such VEBAs in effect at the time of the survey. All of the studied VEBAs were in the manufacturing, retail, or transportation industries, and nearly all are Segal clients.
The Segal survey found the following retiree health VEBA characteristics:
Reason for formation Ten VEBAs were formed as a result of a bankruptcy filing and another seven due to collective bargaining in bankruptcy, while six were the result of collective bargaining.
VEBA board of trustes—Most commonly retirees and union representatives were on the VEBA board. Seven VEBAs had only retiree trustees, six had both retirees and union representatives, and another four had both of those plus independent trustees, while five had union and company trustees.
Reasons for VEBA termination—Of the three VEBAs that terminated, one did so because it had a time-limited foundation, after which the company was to resume providing the benefit; one company had a right to take over the VEBA and to guarantee benefit levels; and one VEBA’s funds were exhausted.
VEBA period—Nearly one-third (seven) of the VEBAs had started in 2007 or were set to start in 2008; but five of the VEBAs have been in existence for at least 15 years.
Participants covered—Of the 22 continuing VEBAs, six had fewer than 1,000 participants and another six had between 1,000 and 4,999 participants; four had 5,000 to 9,999 participants; and another four had 10,000 to 99,999 participants. Fifteen of the VEBAs covered only a closed group of retirees (not open to new retirees).
Assets, income—Assets ranged from less than $10 million (four VEBAs) to more than $1.5 billion, and nine of the 22 VEBAs have either guaranteed or potential additional income from a company.
Benefits offered—Nearly all (21, including the terminated VEBAs) cover or covered both pre-Medicare-eligible and Medicare-eligible retirees, while four provide Medicare supplemental benefits. Other benefits that the VEBAs offered were life insurance (7), dental coverage (5), and either Part B premium reimbursement or a medical reimbursement account (5). Of the 22 continuing VEBAs, ten offer varied plan options and eight have improved benefits in the past three years.
Stand-alone retiree medical VEBAs offer advantages both to companies (for financial and accounting purposes) and to beneficiaries, who “appreciate the security of having a funded benefit and greater say in benefit determination,” Segal concluded. However, “it is important to recognize that stand-alone retiree health VEBAs are not the solution in all situations. The tax advantages of a VEBA are only available to certain types of employers, funding of the VEBA has to be sufficient to provide benefits, and detailed financial information about company performance must be available.”
For more information, visit http://www.segalco.com.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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