VEBAs not Just for Traditional Retiree Medical Coverage

January 14, 2008 (PLANSPONSOR.com) - A new study from The Segal Company indicates Voluntary Employees' Beneficiary Associations (VEBAs) are not limited to traditional major medical, hospitalization, and prescription drug coverage for retirees.

Segal found that some VEBAs in its study offered Medicare Part B premium reimbursement (five out of 25), life insurance (seven), or dental coverage (five) in addition to or instead of traditional coverage, according to a report on the study results. Almost all (21) offered medical and prescription drug coverage for Medicare-eligible retirees and/or retirees not yet eligible for Medicare.

Of the 22 ongoing VEBAs in the study, 10 offer participants a choice among plans. Eight said they have improved benefits within the last three years, including lowering retiree contributions and drug copayments.

Although a recent agreement between General Motors and the United Auto Workers (UAW) to set up a retiree health care trust for UAW retirees (See GM and UAW Agree to Retiree Health Care Trust ) has increased focus on VEBAs, Segal found some VEBAs have been in existence for a decade or more. In addition, the report suggests VEBAs are not just for very large retiree populations. Assets held by the 22 ongoing VEBAs in the study ranged from less than $10 million to more than $1.5 billion.

Historically, bankruptcy was the most common reason companies formed a VEBA, but collective bargaining is becoming a more prominent driver, Segal said in the report. Ten of the 25 VEBAs included in the study were formed due to bankruptcy; seven were formed as a result of collective bargaining in bankruptcy, and six were formed out of collective bargaining only.

The tax-exempt trusts can offer several advantages to employers, including tax deductions and relief from some administrative duties (See Total Benefits: Viva VEBA ), but Segal warns that retiree health VEBAs are not the right solution for all companies. The tax advantages of a VEBA are only available to certain types of employers, there are rules for sufficiently funding VEBAs, and companies must provide detailed performance information, Segal pointed out in the report.

The Segal Company study included 25 stand-alone retiree health VEBAs, all related to the manufacturing, retail, or transportation industries, and most of which are Segal clients.

Segal’s “Study of Retiree Health VEBAs” is here .

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