How is a VEBA funded?

How is a VEBA Funded?

VEBA HRAs are valuable, fully tax-sheltered vehicles through which employees can be reimbursed for eligible medical expenses.  Although VEBAs are typically funded by Employer Contributions, there are other ways that monies can move into the VEBA.

Apr 24, 2019

VEBA HRAs are valuable, fully tax-sheltered vehicles through which employees can be reimbursed for eligible medical expenses.  Although VEBAs are typically funded by Employer Contributions, there are other ways that monies can move into the VEBA.

Flat-Dollar Funding

The most common funding of a VEBA is a flat dollar-amount bargained by a labor group with its employer.  There may be multiple bargaining groups within the employer, and each labor group may have a differing contribution.  However, the contribution amount must be the same within each group.

Mandatory Salary Deferrals

Another method to fund the VEBA is through Mandatory Salary Deferrals.  Each employee in the bargaining group (following the same example as above) must defer the same percentage or flat-dollar amount into the VEBA.   There is no individual election to defer the salary.  It must be a group decision.

Leave Conversion

Leave Conversion, including vacation, sick leave, and PTO, is another source to fund the VEBA.   The bargaining group decides as a group, with no individual election, how much of their leave value they want converted into the VEBA.  They can convert all or a portion of the leave and can do so every year and/or at retirement.

Pooled VEBAs

VEBAs can also be structured as a Pooled VEBA.  For example, the VEBA can hold an employer’s self funded health plan reserves to offset future unexpected claim expenses.  Another design is where an employer can fund a pooled VEBA during active employee years, and then provide an individual benefit when the employee retires (typically based on a years of service formula).

VEBA HRAs can be flexible to a group’s needs in a fully tax sheltered way to help employees pay for out of pocket medical expenses. If you have questions about these examples or VEBAs in general, please contact Karni Adamson at  kadamson@bpas.com:

Karni Adamson is a Senior Sales Relationship Manager, VEBA & HRA/HSA Services at BPAS.