In a private letter ruling dated November 20, 2000, the IRS held that funds left in a voluntary employee benefits association (VEBA) trust after all benefits could be paid, could, in fact, be distributed to a public charity without triggering any penalties or excise tax. The ruling was published only recently, according to Dow Jones.
Generally plan sponsors are prohibited from recapturing surplus VEBA assets, or directing them toward unintended purposes. In fact, the IRS imposes a 100% excise tax on “disqualified benefits”.
Typically the excess would be carried over to a successor plan, or distributed to participants. However, in this case the IRS held that since the company that sponsored the plan no longer existed, and could not benefit from the funds, or any resulting goodwill, there would be no tax abuse in donating the excess to charity. The IRS didn’t reference any ERISA issues in making its determination.
The VEBA was established to provide health/dependent care benefits to employees, but the employer went bankrupt and the trust was established to administer the VEBA. After all plan obligations were met, an undisclosed amount of monies were left over – an unusual result under the circumstances.
Private letter rulings apply only to a specific situation, and don’t establish a legal precedent for others. Still, they do provide insight into how the Service’s thinking on different issues.
– Nevin Adams firstname.lastname@example.org