VEBA account for sick leave at retirement
Table of Contents
A VEBA is a tax-free health reimbursement account which can continue year over year (unlike a Flexible Spending Account). A VEBA can be used by you and your eligible dependents to reimburse for qualified health expenses after your retirement. VEBA is authorized by the Washington State Legislature, with contracts overseen by the State of Washington Health Care Authority, and is operated under rules established in the Internal Revenue Code (IRC).
Currently there are three groups with access to a VEBA, which are:
Group 1: Retiree Sick Leave Cash-Out VEBA
As authorized under RCW 41.04.340(7), staff who 1) accrued sick leave under state employment, 2) separate from active state service due to retirement, 3) filed a timely UW retirement application with the UW Benefits Office under the rules of their retirement plan, and 4) belong to an employer group that voted to participate in a VEBA—are eligible to participate in a VEBA.
If VEBA has been approved in your employee voting group, participation is mandatory for everyone retiring in that group. Failure to complete the required VEBA enrollment form within 60 days of retirement, will result in the forfeiture of any remaining sick leave balance.
Under IRC rules, a VEBA is implemented only if a vote by retirement-eligible employees in a voting group determines that a majority of those employees wish to participate in such a program. If VEBA has not been adopted by your employee group, your sick leave will be cashed out and you will need to pay federal income and FICA on your 25% sick leave cash-out payment at retirement.
The following employee groups voted to participate in a VEBA:
- Professional Staff
- Classified non-union staff
- Contract classified staff of the following bargaining units:
- CSA/925 SEIU
- 1199 NW/SEIU (Nurses – HMC)
- Local 1001 UFCW
- GCIU Local 767M
- Washington Federation of State Employees AFSCME-AFL-CIO
The following labor union has not conducted a vote to date on the VEBA:
- Inland Boatmen’s Union
Group 2: UW Police Officers
Campus Police Officers covered by labor contracts with either the Teamsters Union or UW/WFSE UWPMA are eligible for the UWPD VEBA. Eligible job codes are:
- Campus Police Lieutenant (8786)
- Campus Police Sergeant (8787)
- Campus Police Officer (8990)
Note: Participation in this VEBA creates limitations on the health plan elections open to you. For more about this, contact the VEBA Customer Care Center (below).
Group 3: Tenured Faculty
The Provost’s Office may periodically authorize a Voluntary Retirement Incentive (VRI) for tenured faculty. The incentive payment for eligible faculty who accept the VRI is placed in a tax-free VEBA account. Review the Academic HR website for VRI information.
Generally, dependents must satisfy the definition of Qualifying Child or Qualifying Relative as of the end of the calendar year in which expenses were incurred to be eligible for benefits under your VEBA plan. These requirements are defined by Internal Revenue Code §152 and summarized below:
- your spouse,
- your dependent children, and
- your other dependents as defined under the IRC.
Deposits to a VEBA are exempt from federal income and FICA. This is the primary benefit of a VEBA account. No additional deposits can be made by the individual. The election of investment options can be made to impact the growth of the account. However it is possible to lose principle. See below for additional details.
A VEBA is set up to reimburse for healthcare expenses. Its primary benefit is the tax savings on the initial deposit of funds into the account. Many individuals withdraw their VEBA funds very quickly to cover medical expenses. Others may wish to save the account for future use, and invest for long term growth. Investment options available within the VEBA should not be considered in the same light as investment options for traditional retirement accounts.
Plan Administrative Fees
Because a VEBA Trust is ultimately a payer of claims, the plan fees may be higher and are more complex than a traditional retirement account. Plan fees are:
- a per-participant fee of $1.50 per month
- plus an annualized, asset-based fee of approximately 1.25%
Plan expenses include: claims processing, customer service account administration, printing, postage, legal, consulting, local servicing, auditing, etc.
Your account value changes on a daily basis. Activities that may affect your balance include investment earnings/losses, contribution and claims activity, and assessment of the annualized, asset-based fee.
Unused Funds at Death
If upon your death there are unused funds in your VEBA and you are survived by your legal spouse or dependent children (or other dependents as defined by the IRS), they will be able to use the remaining funds in the account for their eligible health care expenses.
If you have no surviving spouse or dependent(s), any remaining funds will be forfeited and redistributed pro rata among the remaining participants.
Note: IRS Revenue Ruling 2006-36 does not permit the payment of benefits to non-dependent heirs in the event a deceased participant has no surviving spouse or dependent(s).
For more information and answers to your questions, visit the VEBA website at www.veba.org. Click on the “Higher Education” tab.
Customer Care: 888-828-4953 or email@example.com
Mailing address for Claim Forms and all other forms:
PO Box 80587
Seattle, WA 98108