Definition of a Voluntary Employees’ Beneficiary Association Plan
A voluntary employees’ beneficiary association account (VEBA) is a tax-free health and welfare benefit trust funded by either employees or their employer. It’s a health reimbursement arrangement (HRA) that can repay you for eligible medical expenses such as deductibles, copays, prescription medication costs, retiree insurance premiums, and more. VEBAs are attractive options because you don’t need to pay taxes on the balance, accrued interest, or withdrawals. If you’re enrolled in one, your benefits extend to your dependents and designated beneficiaries.
Acronym: VEBA
How a Voluntary Employees’ Beneficiary Association Plan Works
VEBAs have been around for longer than 90 years, but regulations were only proposed in the late 1960s. The final regulation was published in the Federal Registrar in 1981, and helps guard against discriminatory practices and clarify rules. VEBAs are more common in certain industries, especially steel, utilities, telecommunications, car manufacturers and their suppliers. Either an employer or a group of employees can establish a VEBA. Companies typically manage and run VEBAs, but sometimes, a union representing workers will take charge. Although the name includes the word “voluntary,” which suggests you can choose whether or not to participate, your employer has the option to require all employees to join if being a member doesn’t cause harm to the employee. Generally, a VEBA account is funded through employer contributions, but it may also be funded through mandatory salary deferrals or leave conversions, where part of the value of your annual paid time off (such as vacation or sick days) is added to the VEBA. Once your standard VEBA account has a balance of $1,000, you can open a VEBA Basic Investment Account and transfer any additional funds into it. In this self-directed account, you can invest toward your retirement by choosing from a curated portfolio of mutual funds. Another notable feature of a VEBA is that the money in both your standard and investment accounts is typically yours to keep, regardless of whether you change jobs or retire. You’d be able to continue drawing from your VEBA account to pay for eligible medical expenses or keep investing your VEBA dollars.
What Does a Voluntary Employees’ Beneficiary Association Plan Cover?
You can use your VEBA funds for a variety of expenses, although exactly what’s covered varies by plan. Check your plan details to see what it covers. A VEBA can provide life, sickness, accident, or other similar benefits, which may include:
Accidental death and dismemberment benefits Lost wages due to sickness or injury Deductible reimbursements Medical, dental, or vision Insurance premiums Health insurance premiums when moving between jobs or retirement (COBRA, Medicare, etc.) Medical expenses that aren’t covered by your health insurance Eligible medical expenses, including those relating to diagnosis, treatment, mitigation, and disease prevention, or affecting any bodily structure or function Child care Vacation pay and expenses Vacation facilities Recreational expenses Job readjustment allowances Income maintenance payments Temporary living expenses Supplemental Unemployment Compensation Benefits (SUB) Severance pay Education or training benefits or courses Personal legal services payments
For example, say you wear glasses for myopia and pay to have laser eye surgery to correct the condition. Health insurance doesn’t usually cover this procedure, so it’s no surprise yours doesn’t either. However, this type of surgery qualifies as medical care under the IRS’ guidelines because it corrects a dysfunction in the body. That means you can file a claim with your VEBA plan administrator and receive reimbursement in as little as five to seven business days. In some cases, you may even receive a plan debit card and be able to use it to pay for eligible expenses directly.
