VEBA Plan for CTC  Questions & Answers

What is the VEBA Plan? The VEBA Plan is a tax-free health reimbursement arrangement (HRA) that enables your employer to make tax-free contributions into a special trust account on your behalf. These tax-free funds can then be used to pay or reimburse eligible out-of-pocket health care costs and premiums for yourself, your spouse, and your qualified dependents. The VEBA Plan for CTC is available to community and technical college employees in Washington. What is an HRA? IRS guidance defines an HRA as a health reimbursement arrangement funded by an employer for the purpose of reimbursing out-of-pocket health care expenses and premiums incurred by an employee, spouse, or qualified IRS dependents. In Washington, these arrangements have been commonly referred to as "VEBA" plans for more than two decades. However, the technical term defined by the IRS is "HRA". What is a VEBA? A VEBA is a voluntary employees' beneficiary association authorized by Internal Revenue Code Section 501(c)(9). VEBAs are a special type of tax-exempt trust vehicle which provides employee benefits. Hundreds of public employers, including almost every community and technical college in Washington, have adopted a VEBA program which offers a health reimbursement arrangement. An HRA, such as the VEBA Plan, provides employees and retirees with a tax-free source of funds to pay or reimburse qualified out-of-pocket health care expenses and premiums. What are the tax objectives? The tax objectives are to enable your employer to make tax-free contributions to the plan on your behalf, for your account to be credited with tax-free investment earnings, and to enable you to obtain tax-free reimbursements for your eligible out-of-pocket health care expenses and insurance premiums. Contributions, earnings, and withdrawals are not tax reportable. Contributions will not be included on Form W-2 from your employer and you will not receive a Form 1099 for any earnings or withdrawals. Why should I participate in the VEBA Plan? Health care costs are increasing each and every year. The VEBA Plan provides a tax-free source of funds to pay for the growing cost of health care expenses for you, your spouse, and your qualified dependents. If you are eligible for in-service contributions, you can use your account anytime, before and after separating employment, to reimburse eligible out-of-pocket expenses. After leaving employment, you can also use your account to pay qualified insurance premiums. What does "tax-free" really mean? Your account is exempt from all taxes. All contributions, earnings, and withdrawals are 100% tax-free. You could save up to $300 or more in taxes for every $1,000 contributed to the VEBA Plan(1). Contributions to tax-deferred investments such as traditional IRAs or 457, 401(k), and 403(b) plans are subject to Social Security and Medicare taxes. Federal income tax is merely postponed until you make withdrawals.  (1)  Tax savings are approximate. How can my account be funded? There are several potential tax-free funding sources. Outlined below are a few of the most common along with general eligibility requirements. All union/employee group members defined as eligible must participate.   1.       Retirement Sick Leave Cash Out To be eligible at retirement, you must immediately begin receiving state pension benefits. The maximum cash out calculation is 25% of your accrued compensable unused sick leave balance, based on your salary at the time of retirement. There is no minimum. Annual sick leave cash may not be contributed.   2.       Vacation, Personal, or Other Leave Cash Outs Eligibility and cash out formulas are determined by collective bargaining agreements, other written agreements, or employer policies.   3.       Mandatory Employee Contributions (no individual elections permitted) Eligibility and contribution amount(s) are determined by collective bargaining agreements, other written agreements, or employer policies. Groups can elect a monthly flat dollar amount (e.g. $100). What investment options are available? The VEBA Plan’s participant-directed investment fund choices can be summarized as follows:  Option A: Do-it-yourself Build your own asset allocation portfolio using funds from among six individual asset classes.   Option B: Choose a pre-mix Select one of four professionally designed pre-mixed asset allocation portfolios with a risk level based on your projected time horizon (i.e. the length of time until you expect to begin filing claims).   Detailed information can be found on the Investment Fund Information brochure. Please read this information carefully and consult with your personal financial advisor before making an investment decision. The trustees, plan consultant, and third-party administrator (TPA) do not give investment advice. Will my account grow? Net investment earnings (or losses) after fund management and trust administrative expenses have been deducted are credited tax-free to your account on a monthly basis.   How often can I change the investment allocation of my account? You can change your investment fund allocation as often as once a month.   When do I become eligible to enroll and participate in the plan? Typically, after your employer adopts the plan, your union/employee group makes a group decision to determine how the plan will be funded and who will be eligible to participate. Upon meeting the eligibility requirements, simply complete a VEBA Plan Membership Enrollment Form and return it to your employee benefits office. You will become a participant and your account will be activated when the TPA receives a contribution from your employer and a properly completed and signed Membership Enrollment Form on your behalf. IRS rules require that all union/employee group members defined as eligible must participate.   How do I get money out of my account? Simply mail, e-mail, or fax a completed Claim Form to the TPA. You will need to include proper substantiation of your expense such as a detailed receipt or an EOB (Explanation of Benefits) from your insurance provider. Withdrawals from your account can be made only for eligible out-of-pocket health care expenses and premiums.    Claims payment is efficient and hassle free. Multiple expenses can be submitted on a single form. Direct deposit is available to make your claims reimbursement even more convenient and secure. You can even reimburse or pay your eligible monthly insurance premiums automatically by submitting a Systematic Payment Form. Claim Forms and Systematic Payment Forms can be obtained in the "Forms" section of this website or by contacting the TPA.   When can I begin using my account? After becoming a participant, you can file claims to pay or reimburse eligible out-of-pocket health care expenses and premiums for yourself, your spouse, and your tax-qualified dependents at any time. Eligible expenses submitted for reimbursement must be incurred after your account is first activated. If you are eligible for contributions prior to retirement, you don’t have to wait to retire to begin filing claims. It’s easy to file a claim and payments are processed daily from Spokane.   Is there any annual “use-it-or-lose-it” requirement? No. Unlike Section 125 flexible spending accounts (FSAs), unused funds in your VEBA Plan account are carried over from year to year.   What happens if I die with funds remaining in my account? 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 surviving spouse or eligible dependent(s), the funds remaining in your account will be paid as medical expense reimbursements to the heir(s) of your estate. Payments to heirs will be taxable. Effective July 1, 2009, payments to heirs will no longer be permitted, and unused account balances will forfeit to the Plan.   NOTE:  IRS Revenue Ruling 2006-36 requires the Plan to discontinue providing reimbursements to heirs for expenses incurred on or after July 1, 2009.  This ruling only affects benefits paid to heirs; reimbursements to a surviving spouse or dependent(s) will continue to be available.   What expenses and premiums are eligible? Eligible expenses for yourself, your spouse, and qualified dependents can include office visits; over-the-counter medications and prescription drug co-payments; annual deductibles; and many other medical, dental, and vision costs not covered by your insurance plan(s). All medical, dental, vision, tax-qualified long-term care (subject to IRS limits), Medicare Part B, Medicare Part D, and Medicare supplement plan premiums are also eligible. Insurance premiums paid by an employer or that are or could be deducted pre-tax through your or your spouse's Section 125 cafeteria plan, are not eligible for reimbursement. A sample listing of eligible expenses can be viewed at www.veba.org.   Eligible expenses and premiums are defined in IRC Section 213(d).    Qualified dependents are defined in IRC Section 105(b) and described in IRS Publication 502. IRS publications may be obtained by calling 1-800-TAXFORM or by visiting www.irs.gov.   Can any retiree medical premium be paid from my account? Yes. The cost of any qualified medical insurance plan you elect to use during retirement can be paid or reimbursed from your account, including Medicare Part B, Medicare Part D, and Medicare supplement plans. If you are a TIAA-CREF retiree, you may have the third-party administrator pay your PEBB premium directly to the Health Care Authority.   How often will I receive an account activity statement? You will be sent a semi-annual participant activity statement in January and July detailing your account activity. Sign up for E-statements. E-statements are a faster and more secure method of receiving your periodic participant activity statements. After signing up, you will no longer receive your statements through the mail. You will instead receive an e-mail notification each time a new statement is available for online viewing. E-statements will be accessible online for up to two years.   E-statement Sign Up Form   Can I access my account online? Yes. Convenient online account access allows you to view your account activity, update personal information, and submit investment fund allocation changes. Visit www.veba.org for online access to your account.   Who is the third-party administrator? REHN & ASSOCIATES, located in Spokane, is the third-party administrator (TPA). Founded in 1961, REHN & ASSOCIATES is an experienced employee benefits administrator with highly-trained staff specializing in HRA administration.  The TPA provides all correspondence, accounting, and benefit payment services. Please immediately notify the TPA of any address, name, or systematic premium payment changes.   Who is responsible for managing the VEBA Plan? The VEBA Plan is offered by a non-profit, tax-exempt VEBA trust managed by a board of trustees appointed by the plan sponsors.   The plan sponsors are the Association of Washington School Principals, the Washington Association of School Administrators, and the Washington Association of School Business Officials.   What are the trustees’ responsibilities? The trustees are fiduciaries and have a duty to act prudently and in the best interest of all plan participants and beneficiaries.   How are the trust expenses paid? Expenses of operating the trust are paid by reductions of investment earnings or, if there are no earnings, charged as a deduction to participant accounts.   Trust administrative expenses average 1.65% and are expressed as an annualized percentage of average net assets. Administrative expenses vary slightly month to month and include legal fees, consulting, local servicing, printing, postage, auditing, claims payment, etc.    If your account balance is less than $250 and your account has not been credited with any contributions for the preceding 12 months, a small inactive account fee of $2.00 per month will be charged. You may file qualified claims to exhaust your account and avoid this fee.   Where can I get more information? To learn more, visit www.veba.org. For information regarding your account, questions about claims, or to request forms, contact the TPA, REHN & ASSOCIATES, at 1-800-VEBA101 (832-2101).   For general plan information, employer adoption inquiries, or to schedule an informational group meeting, contact your representative at the VEBA Service Group, LLC regional office nearest you. In Eastern Washington, call 1-800-888-VEBA (8322). In Western Washington, call 1-800-422-4023.

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