VEBA/115 Trusts & HRA

Additional Reading

VEBA/115 Trust HRA Services

A Voluntary Employees’ Beneficiary Association (VEBA) is a tax-exempt, irrevocable Trust under Section 501(c)(9) of the Internal Revenue Code. This type of trust is used as a vehicle for employers to fund certain types of benefits, including funded Health Reimbursement Accounts (HRA). A VEBA/115 Trust HRA is usually funded solely by the employer, who makes pre-tax contributions to the Trust on behalf of employees, to pay for current and/or future medical healthcare expenses.

VEBA/115 Trust & HRA Possibilities

A VEBA/115 Trust HRA is one of the most flexible benefit plans—which makes it attractive to many employers. Plans can be designed to suit specific employer and employee needs. Some common strategies used by employers include:

• Funding post-employment premiums and expenses for retirees
• Embedding the VEBA/115 Trust with a high deductible health plan (HDHP) for active employees
• Holding healthcare and self-funding reserves for future medical expenditures as a Governmental Accounting Standards Board (GASB) 45 prefunding plan

The IRS permits the VEBA/115 Trust HRA contributions and any associated investment earnings to be accumulated on a tax-free basis. Plus, as long as withdrawals are used to reimburse an eligible medical expense, the distribution is also considered tax-free to the employee—that makes for a triple tax advantage! Employers enjoy the benefit of tax savings since they do not pay FICA, Workers’ Compensation or Unemployment insurance taxes on the contributions they make.

The flexibility of the VEBA/115 Trust HRA offers several ways for employers to make contributions, including:

• Specific dollar amount made at specific intervals
• Percentage of wage (union groups)
• Accrued, unused sick-leave and/or paid time off buyback programs

Also, because the VEBA/115 Trust is considered a separate legal entity, assets are protected from the creditors of the sponsoring employer.

How it Works

Once contributions are made to the Trust, participants have the ability to invest their account balances in a menu of mutual-fund offerings similar to a 401(k) Plan. BPAS offers a true open-architecture investment platform, enabling employers to use the strongest possible menu of investments, while eliminating any conflicts of interest in fund selection.

Employees can use their VEBA/115 Trust HRA funds for reimbursement of out-of-pocket eligible medical expenses.  All medical expenses, as defined by the IRS Code Section 213(d), are eligible expenses under a typical VEBA/115 Trust arrangement. Employee account balances can roll over from plan year to plan year. This feature makes a it one of the best tax-advantaged tools for employees to accumulate assets to pay for the rapidly rising costs of post-employment healthcare.

The free debit card is the most convenient way for participants to utilize their HRA dollars. Participants simply swipe their card at the point of purchase and the funds are pulled directly from their HRA. In addition, claim reimbursement requests can be made online through our easy-to-use participant website or mobile app. BPAS provides all necessary plan documents and compliance work. We will work with you to design a customized plan that will meet your company’s needs and objectives.  Our easy-to-navigate plan sponsor website provides you with all the tools and resources to manage your plan, while streamlining administration and eliminating time-consuming paperwork.

BPAS offers a vertically integrated VEBA/115 Trust HRA solution. We act as claims administrator, daily valuation recordkeeper, clearing firm, and asset custodian all under one roof. This is extremely rare in the industry. That’s why BPAS clients see it as a refreshing alternative to the multi-vendor solutions out there. One Company. One Call.

HSA Services

Until recently, the 401(k) Plan was the focal instrument for helping America’s workforce save for their retirement. It’s no secret that the ever-increasing costs of offering healthcare benefits to employees are one of the highest expenses of a company. As a result, many employers are adding a High Deductible Health Plan (HDHP) to their array of healthcare offerings to provide some reprieve. Offering an HDHP typically costs an employer significantly less than a traditional plan due to the lower premium rates, and delivers savings to participants as well.

What is an HSA?

Health Savings Accounts (HSA) are tax-advantaged medical savings accounts available to employees who are enrolled in an HSA-Qualified HDHP. Both employees and employers can make tax-free contributions to an employee’s HSA account. Because the premiums are significantly lower than a traditional comprehensive healthcare plan, employers and employees will normally use some of the cost savings they experience to contribute to the HSA.

Each year, the IRS sets specific limits on what qualifies as an HSA-eligible HDHP, as well as the contribution limits going into the accounts. Current IRS limits are:

Similar to a 401(k) Plan, participants have a set of mutual funds into which they can direct investments. Through the BPAS true open-architecture investment platform, we offer high quality investment menus across the full range of asset classes. Employees benefit from first-dollar investment access in their account, a stable value fund, and a range of other funds with different investment objectives and risk profiles.

Tax Advantages

There are three key tax advantages to HSAs, which can provide for significant tax savings to both employers and participants:

1. Contributions to the HSA are generally not subject to federal income tax.
2. Investment earnings in an HSA account typically grow tax-free.
3. Distributions from an HSA are tax-free—as long as the dollars are used to pay for a qualified medical expense.

Contributions employees elect to make into their HSA also provide employers with a tax benefit by reducing their FICA/payroll tax liability. Besides the lower premium costs, this tax savings is another reason employers should encourage employees to participate in an HSA and maximize employee engagement in the plan.

The IRS Code Section 213(d) defines qualified medical expenses. These expenses generally include deductibles, coinsurance, copays, prescription drugs, dental and vision care, etc. HSA participants will receive a free debit card offering them a fast and easy way to pay for qualified expenses. They can also file claims for reimbursement through our online participant website portal or the BPASClaims App.

Similar to a 401(k) Plan, account balances in an HSA account roll over from plan year to plan year. There is no use-it-or-lose-it rule. HSA accounts are owned by the employee accountholder, so they’re portable and remain with the employee during employment and throughout retirement.

Although HSA accounts and 401(k) Plans do have similarities, we believe the best strategy is to offer these plans in tandem to help your employees succeed in effectively saving for their future. Unfortunately, many Americans are not saving enough for retirement and face many financial uncertainties in their future—especially when it comes to retirement healthcare costs. The HSA serves a dual purpose: to let employees save for both current and future healthcare costs, while preserving 401(k) balances for other non-medical-related expenses during retirement years. And the tax-free use of these funds for healthcare costs in retirement is a major advantage compared to the “tax-deferred” treatment of most DC-Plan distributions (excluding Roth).