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What is a VEBA and what are the tax
objectives of the Plan?
A VEBA is a tax-exempt trust authorized by
the Internal Revenue Code Section 501(c)(9). The tax objectives
of this type of plan are to enable your employer to make
tax-free deposits on your behalf to the Plan, for your account
to be credited with tax-free investment earnings, and to enable
you to obtain tax-free reimbursements for your medical expenses
and insurance premiums payments. VEBA-MEP contributions will not
be reported on your W-2.
Why should I participate in the
VEBA-MEP?
The VEBA-MEP account provides a source of
funds to pay for the cost of health care expenses for you, your
spouse, and your qualified dependents. A VEBA-MEP account may be
used to pay any qualified post-retirement medical, dental, or
vision out-of-pocket expenses (deductibles, co-payments,
co-insurance, etc.), plus post-retirement medical, dental, or
vision insurance premiums, Medicare Part B premiums, Medicare
deductibles, Medicare Supplement Plans, and long term care
insurance premiums.
How much sick leave cash-out will be
contributed to the VEBA-MEP at retirement?
When you retire, the total amount
equivalent to your sick leave cash-out, based on your salary at
the time of retirement, will be contributed to your VEBA-MEP
account. Your cash-out amount is calculated at ¼ of your
accumulated unused sick leave balance.
Can annual sick leave cash-out be
contributed to the VEBA-MEP?
No. State law does not provide the
authority for annual January cash-out funds to be contributed to
VEBA-MEP. However, you may choose to not cash-out your unused
sick leave annually, and instead accumulate more sick leave days
which will increase your retirement cash-out amount.
Do VEBA contributions reduce my State of
Washington pension benefits?
No. VEBA contributions do not reduce the
wage base reported to the Department of Retirement Systems which
is used to calculate your pension.
When and how do I get money out of my
VEBA-MEP?
Your VEBA-MEP is opened when your Employer
sends sick leave cash-out funds to the VEBA Plan Administrator.
You will be mailed a Welcome Packet and then you may submit a
VEBA Medical Claim Form for your qualified out-of-pocket
medical, dental or vision expenses incurred by yourself, your
spouse, and/or your qualified dependents. Claims payment is
efficient and hassle free.
You may file claims for any amount.
Benefits will be paid until your account is used up. You may
also arrange to have monthly insurance premiums paid by using
the VEBA Systematic Payment Form. If your spouse or dependents
are covered by different medical plans, their insurance premiums
can also be paid out of this account.
Can the cost of any qualified retiree
medical plan be paid from my VEBA-MEP?
Yes. The cost of any qualified medical plan
you elect to use after retirement can be paid out of this
account, including PEBB plans, Medicare Supplement Plans, etc.
If you join the PEBB Retiree Medical Plan, you can authorize the
Department of Retirement Systems to deduct your medical premium
from your defined benefit pension check (PERS/TRS retirement
plan members). You can then arrange with the VEBA Plan
Administrator to directly reimburse you from your VEBA account
by using the VEBA Systematic Payment Form. Direct deposit is
available.
What happens if I die before my VEBA-MEP
is used up?
If you are survived by a spouse or
dependent children (or other dependents as defined by the IRS)
they may submit requests for medical expense reimbursements
until your account is used up. If you have no eligible
dependent(s), the funds remaining in your account will be paid
as medical expense reimbursements to the heir(s) of your estate.
Who is the VEBA Plan Administrator?
Rehn & Associates in Spokane is the VEBA
Administrator. Rehn is an experienced employee benefits
administrator specializing in the administration of ERISA health
and welfare plans. Rehn provides all correspondence, accounting,
and benefit payment services.
Who is responsible for developing and
managing this Plan?
The VEBA Trust was developed and sponsored
by the Association of Washington School Principals (AWSP),
Washington Association of School Administrators (WASA), and the
Washington Association of School Business Officials (WASBO). It
is managed by six Trustees appointed by the sponsoring
organizations. Over 25,000 employees have participated in the
VEBA Trust since its inception in 1984.
What are the Trustee’s responsibilities?
The Trustees are fiduciaries and have a
duty to act prudently and in the best interest of all the Plan
participants and beneficiaries.
Will I receive a statement of my
account?
You will receive a semi-annual statement
detailing all activity in your account. You may also call and
request additional statements at any time.
Will my account grow?
The net investment earnings or losses
(after expenses are deducted) are credited tax-free to your
account on a monthly basis.
How is the VEBA money invested?
The Trust offers you three fund options.
You may choose to have all or a portion of your VEBA account in
any or all of the following funds:
·
Stable Value Fund
·
Balanced Fund
·
Growth Fund
Investments
in the Balanced and Growth Funds will fluctuate in value. VEBA
is not meant to be a long term investment account. Its purpose
is to hold funds that are distributed for medical expenses;
hence the higher administration fee.
How are expenses paid?
All expenses of administering the Plan are
paid by reductions of investment earnings, or, if there are no
earnings, charged as a deduction to a participant’s account.
I am grandfathered in to the 180-day med plan. Why do I
get to vote on VEBA?
As an employee grandfathered into the 180-day med plan you
have a vote regarding VEBA because every year you may elect to
switch over to the accrual method. Although the 180-day med
plan is NOT cashable, if you were to switch over to the accrual
method, your previous hours, plus any new accruals would be
cashable and part of the VEBA plan. This decision can be made
any year (only once) up until retirement.
Why can’t people decide if they want to
participate individually in the VEBA plan, instead of forcing
everyone into the plan?
The "all or none" comes from IRS rules.
VEBA Medical Expense Plans were created by the governing bodies,
but they must comply with tax laws. The IRS very clearly states
that if you give employees the choice of receiving cash
or having a benefit, then that benefit/cash must be taxable as
income. The only way to protect the tax status of the VEBA
account is to make it such that employees don't have the option
and/or choice to receive cash. Therefore, we can create a VEBA
MEP, and allow people to vote participation in (or out), but
once it's voted in, all employees must participate. In other
words, you cannot provide a tax free benefit without making
everyone participate.
The whole benefit of the VEBA-MEP is the
tax protection. In the past, if you were to retire from the
University, you could cash out your sick leave, but it would be
taxed at 25%. So, you lose 25% of the 25% cash out. The VEBA
MEP accounts were created, because it was presumed that the
majority of people who were retiring from the University would
have some sort of health care costs during their retirement
years. Specifically, costs associated with premiums for retiree
health care coverage and/or Medicare, or costs associated with
keeping themselves healthy in old age. This tax protection
would allow people 25% more money to spend on what is pretty
much a guaranteed need.
Is
it a huge hassle to request reimbursement?
Similar to the FSA (Flexible Savings Account), you must fill
out a reimbursement form, along with appropriate documentation.
If there is a question about the documentation or medical
necessity, there may be additional steps. For the majority of
claims the process is very simple. There is also an option to
set up automatic premium payment from your VEBA-MEP for regular
medical expenses such as your Retiree health insurance
premiums. That way, the VEBA administrator automatically sends
payment to the WA State Health Care Authority for your retiree
medical premiums.
Can employees contribute additional money to their VEBA
account?
No. Additional contributions are not allowed at this time.
However, congress is considering legislation that would allow
for the creation of a Health Savings Account. This account
would be similar to the University’s Flexible Savings Account or
a Personal IRA. It would allow taxpayers to put aside money on
a tax free basis to cover health care related expenses. This is
something to watch for in the future.
Is there a maximum allowed cash-out?
No, whatever your sick leave balance is, it will be cashed
out at 25% upon retirement.
If I am a
member of the State’s retirement plan (PERS, TRS, LEOFF) will
the cash out value be added to my annual income?
The cash out value
of sick leave is not added to your W-2 income or applied to your
retirement.
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