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VEBA account for sick leave at retirement

When you retire from UW, you don’t lose your sick leave. Instead, 25 percent of your unused sick leave balance is cashed out and placed into a reimbursement account. Use this account to reimburse yourself for qualified out-of-pocket health care costs including premiums, deductibles, copayments, coinsurance, prescriptions, and many other qualified expenses that you incur.

This reimbursement plan for UW retirees is managed by the Voluntary Employees’ Beneficiary Association (VEBA) trust, which serves more than 50,000 Washington state employees. Through the trust, you get a Health Reimbursement Arrangement (HRA) account — your VEBA account — to help you pay for health care costs during retirement.

The money in your VEBA account is completely tax free — the money’s not taxed when your account is funded, nor when the account accumulates earnings, nor when you use the money (by filing a claim) to reimburse yourself for IRS-qualified health expenses.

Participating in the VEBA medical expense plan

For most UW employees, eligibility to participate in VEBA is the only way to cash out unused sick leave at retirement. If your position falls under one of these employee types, you’re required to participate in VEBA:

  • Librarians
  • Professional staff
  • Classified non-union staff
  • Campus police officers covered by either Teamsters 117 or WFSE
  • Contract classified staff represented by one of the following unions:
    • SEIU Local 925
    • SEIU Healthcare 1199NW
    • Local 1001 UFCW
    • Teamsters 117 – print plan craft employees
    • WFSE/AFSCME Council 28

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 percent sick leave cash-out payment at retirement.

To date, the Inland Boatmen’s Union has not conducted a vote on VEBA.

Tenured faculty

Tenured faculty who opt for the Voluntary Retirement Incentive (VRI) have their lump-sum payment deposited in a VEBA Standard HRA Plan account.

Rehired retirees

Retirees who become re-employed with the same employer who made a VEBA contribution based upon unused sick leave at retirement are not eligible to access funds in their VEBA account. This claims-eligibility restriction is required for the VEBA plan to remain compliant with federal health care reform rules.

Enroll in VEBA

To enroll in VEBA, attend a UW retirement workshop where you’ll receive a VEBA enrollment form and enrollment kit. Fill out the form and return it to the UW Benefits Office to establish your VEBA account. If you don’t submit your VEBA enrollment form, you’ll forfeit your unused sick leave.

How your VEBA account works

After you retire and enroll in VEBA, your unused sick leave balance is cashed out and deposited into your VEBA account. The cash-out converts your accumulated, unused sick leave hours into their equivalent dollar value, which depends on your salary at retirement. Then 25 percent of that amount is deposited into your account.

In other words when you retire, you get paid for 25 percent of your remaining sick leave hours. You access this money by using your VEBA account.

Spending your VEBA funds

You have immediate, tax-free access to the funds in your VEBA account (unless you are a rehired retiree, see the section above). You can spend this money on qualified out-of-pocket health care expenses such as premiums, deductibles, copayments, coinsurance, prescriptions, and many other qualified expenses.

However, you don’t have to use your VEBA funds right away. It’s not a “use-it-or-lose-it” account — your funds remain in your account year after year. Furthermore, you get to choose how your VEBA account funds are invested. While this isn’t a substitute for general retirement investing, it allows you to decide how best to use your money during retirement.

To learn more about how to use your VEBA account, visit the VEBA Trust website for higher education employees to get more details about:

  • Qualified medical expenses
  • Submitting claims
  • Automatic reimbursement
  • The VEBA debit card
  • Investment options
  • Spouse and dependent coverage
  • Plan administrative fees

For a general overview and introduction to VEBA, download the VEBA plan brochure (PDF).