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By: Bryce M. Van De Moere
Even with the existence of the Affordable Care Act, the preferred way to get health benefits is still through your employer. Health insurance packages have become an integral part of employee compensation. As employers continue to offer health benefits to their employees, liability for employers has also increased exponentially; not only in terms of how to shoulder the premium increases brought on by the utilization of an aging workforce but also exposure to legal action brought on by perceived deficiencies in the quality of the benefits.
Welfare Benefit Plans are described in Title 1 of the Employee Retirement Income Security Act of 1974 (ERISA) which governs any plan, fund or program that provides (among other things), “medical, dental, prescription drugs, vision, psychiatric, long term health care, life insurance or accidental death or dismemberment benefits.” Regulation of these plans is federally governed and penalties for violation of the regulations can be severe. Further complicating an already difficult area, many employers are approaching health insurance carriers and contracting with them directly. They are a signatory to a contract to offer benefits to an employee group and as such can be liable for claims made by their employees. As such, when representing employers, especially those in the public sector, such as Municipalities and School Districts who have a unionized employee base with whom they are required to collectively bargain, it is of vital importance that those employers be shielded from liability, not only from their own employees but also from the penalties associated with failure to comply with state and federal laws that govern those benefit plans and the agencies that enforce those penalties.
One option employers should consider is banding together and pooling their employees by forming or joining a VEBA, or Voluntary Employee Benefit Association. A VEBA is an Internal Revenue Code Section 501(c)(7) Trust that is generally tax exempt and defined as “a mutual association of employees providing certain specified benefits to its members or their designated beneficiaries which may be funded by the employees or their employer.” VEBA’s are legal entities that take the place of the individual employer. Much like incorporation protects your personal assets, a VEBA can protect the employer’s business.
A VEBA is guided by a Board of Trustees made up of the member employers (and sometimes union representatives.) The Trust is now the signatory to the contract. The employer and their employees become a part of a much larger group or “pool” buying benefits in bulk which helps promote price stabilization and increases negotiation power. The Board of Trustees is also allowed to delegate the responsibilities of the Trust, which means they can hire a Trust ERISA counsel and Trust auditor to ensure regulatory compliance and a Trust Benefit Administrator to manage the claims of the benefit plan members. This further shield’s the employer from responsibility and liability.
This is just one of the vehicles available for the management of employee benefit plans. If you have questions about this or other options available under the Internal Revenue Code, feel free to contact me at [email protected].