The Police Benevolent Association (PBA), for employees of Palm Beach Sheriff Office (PBSO), has established a Voluntary Employee’s Beneficiary Association (VEBA) Plan for its deputies and employees, effective July, 1 2016. VEBAs are IRS qualified, tax-free trust funds established to underwrite the future costs retired employee health insurance costs and almost any other future employee benefit. VEBAs have had a long history of use in the U.S. as a part of collective bargaining agreements to fund future retirement benefits for employees on a tax-favored basis through special IRS tax treatment. The VEBA Plan which is detailed in Article 28A of the Collective Bargaining Agreement between the PBSO and PBA requires significant contributions from deputies and employees, which grows to as much as 4% of their payroll. For PBSO employees who plan to retire in the “near term”, a significant lump sum “buy-in” is required which can be funded from accumulated paid-vacation and sick-pay hours earned.
It is the author’s opinion that the tax benefits provided by the tax code cannot be underestimated when determining whether the VEBA Plan is a good idea. VEBA participants can fund future health insurance costs with before-tax contributions. Individuals planning for retirement face the need to fund rising medical costs. Effective retirement planning requires the determination of how to pay for health care costs and how to earmark the funds for this purpose along with other retirement income needs. In our previous Blog Post, we discussed what PBSO retirees should anticipate for all types of health care costs during retirement. After a review these anticipated costs, funding some of the expenses with before-tax dollars provides relieves some of the financial burden. As an aside, the funding of VEBA Plans can sometimes be problematic whenever there is a future promise to provide a benefit which is funded currently. The appropriate level of funding for the VEBA must adhere to strict actuarial standards.
True North Financial Advice
True North Financial Advisors, located in Boca Raton, Florida provides personalized retirement planning services through personalized attention. To help with a personalized financial planning experience we provide a web based platform which is easy for clients to upload and organize their financial information on their own personalized financial website — largely without any assistance. To learn more go to our video library.
This article should not be used for tax advice. In any specific case, the parties involved should seek the guidance and advice of their own tax counsel.
