A recent study by The Segal Company showed that while historically, bankruptcy has been the most common reason for companies to form Voluntary Employees’ Beneficiary Associations (VEBAs), collective bargaining and a challenging economy are becoming more prominent causes.
Interest in VEBAs has increased since the recent agreements between a number of automobile manufacturers and the United Auto Workers (UAW) to establish them. In response to the growing popularity, Segal conducted a study of 25 stand-alone retiree health VEBAs related to the manufacturing, retail and transportation fields. The results found significant variations among the 25 VEBAs included in the study. For example, while one-third were formed in the last year or less, some have been around for decades. The number of participants varied as well, ranging from 250 to 500,000. Also, the VEBAs held anywhere from US$10 million to $1.5 billion in assets and income.
“In some cases, variations are simply due to size of the group and amount of assets available to fund the VEBA,” says Kathryn Bakich, Segal’s health compliance practice leader. “In other situations, with older VEBAs, the population has decreased over time.”
However, offerings and improvements of benefits were very consistent. The study found that 21 of the 25 retiree health VEBAs provided either health benefits for retirees not yet eligible for Medicare or Medicare-eligible retirees. The rest provided supplemental benefits.
But retiree health VEBAs aren’t for everyone. Despite the advantages for both the sponsor and the employee, there are limitations. For instance, the VEBA must receive enough funding in order to provide benefits. Also, the tax advantages only apply to certain types to some, such as collectively bargained employers who aren’t subject to limits on employer funding.
Nonetheless, more companies, especially those with unions, are shifting retiree health liabilities to stand-alone VEBAs. While the economy continues to struggle, the interest in VEBAs will most likely continue as well. “Retirees and their families are in need of a stable source of funding for their retiree health care benefits,” Bakich concludes. “If that source can be through a VEBA, and can be pre-funded instead of an employer promise to pay, VEBAs for retirees may increase over time.”
For the full study on Segal’s website, click here.
To comment on this story, email kirstyn.brown@rci.rogers.com.