What Is a Voluntary Employees' Beneficiary Association Plan (VEBA)?

VEBA Plans Explained in 4 Minutes or Less

Definition
A voluntary employees’ beneficiary association (VEBA) is a tax-exempt trust fund set up by your employer or a group of employees to pay medical and other comparable benefits to members, their dependents, or designated beneficiaries.
A group of employees discussing insurance options.
Photo:

kate_sept2004 / Getty Images

A voluntary employees’ beneficiary association (VEBA) is a tax-exempt trust fund set up by your employer or a group of employees to pay medical and other comparable benefits to members, their dependents, or designated beneficiaries.

Definition of a Voluntary Employees' Beneficiary Association Plan

A voluntary employees’ beneficiary association account (VEBA) is a tax-free health and welfare benefit trust funded by either employees or their employer. It’s a health reimbursement arrangement (HRA) that can repay you for eligible medical expenses such as deductibles, copays, prescription medication costs, retiree insurance premiums, and more.

Note

Depending on your VEBA plan’s design, funds may be available for current eligible expenses or only those incurred after you leave the job or retire. Other types of VEBAs may only reimburse vision and dental costs.

VEBAs are attractive options because you don’t need to pay taxes on the balance, accrued interest, or withdrawals. If you’re enrolled in one, your benefits extend to your dependents and designated beneficiaries.

  • Acronym: VEBA

How a Voluntary Employees' Beneficiary Association Plan Works

VEBAs have been around for longer than 90 years, but regulations were only proposed in the late 1960s. The final regulation was published in the Federal Registrar in 1981, and helps guard against discriminatory practices and clarify rules. VEBAs are more common in certain industries, especially steel, utilities, telecommunications, car manufacturers and their suppliers.

Either an employer or a group of employees can establish a VEBA. Companies typically manage and run VEBAs, but sometimes, a union representing workers will take charge. Although the name includes the word “voluntary,” which suggests you can choose whether or not to participate, your employer has the option to require all employees to join if being a member doesn’t cause harm to the employee.

Generally, a VEBA account is funded through employer contributions, but it may also be funded through mandatory salary deferrals or leave conversions, where part of the value of your annual paid time off (such as vacation or sick days) is added to the VEBA.

Once your standard VEBA account has a balance of $1,000, you can open a VEBA Basic Investment Account and transfer any additional funds into it. In this self-directed account, you can invest toward your retirement by choosing from a curated portfolio of mutual funds.

Another notable feature of a VEBA is that the money in both your standard and investment accounts is typically yours to keep, regardless of whether you change jobs or retire. You’d be able to continue drawing from your VEBA account to pay for eligible medical expenses or keep investing your VEBA dollars.

What Does a Voluntary Employees' Beneficiary Association Plan Cover?

You can use your VEBA funds for a variety of expenses, although exactly what’s covered varies by plan. Check your plan details to see what it covers. A VEBA can provide life, sickness, accident, or other similar benefits, which may include:

  • Accidental death and dismemberment benefits
  • Lost wages due to sickness or injury
  • Deductible reimbursements
  • Medical, dental, or vision Insurance premiums
  • Health insurance premiums when moving between jobs or retirement (COBRA, Medicare, etc.)
  • Medical expenses that aren’t covered by your health insurance
  • Eligible medical expenses, including those relating to diagnosis, treatment, mitigation, and disease prevention, or affecting any bodily structure or function
  • Child care
  • Vacation pay and expenses
  • Vacation facilities
  • Recreational expenses
  • Job readjustment allowances
  • Income maintenance payments
  • Temporary living expenses
  • Supplemental Unemployment Compensation Benefits (SUB)
  • Severance pay
  • Education or training benefits or courses
  • Personal legal services payments

For example, say you wear glasses for myopia and pay to have laser eye surgery to correct the condition. Health insurance doesn’t usually cover this procedure, so it’s no surprise yours doesn’t either. However, this type of surgery qualifies as medical care under the IRS’ guidelines because it corrects a dysfunction in the body. That means you can file a claim with your VEBA plan administrator and receive reimbursement in as little as five to seven business days. In some cases, you may even receive a plan debit card and be able to use it to pay for eligible expenses directly.

Note

Always save your itemized receipts—you may be required to show proof of your eligible expense to your plan administrator.

Key Takeaways

  • A Voluntary Employees’ Beneficiary Association (VEBA) plan is an IRS-approved trust fund that helps employees pay for certain medical expenses, insurance premiums, health insurance deductibles, and more.
  • The IRS defines what kind of medical expenses are eligible. Examples of qualifying expenses include laser eye surgery for myopia patients and breast reconstruction after a mastectomy due to cancer.
  • Either your employer or colleagues can start and manage a VEBA.
  • You can invest your VEBA funds for retirement after your account reaches a certain balance.
Was this page helpful?
Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Internal Revenue Service. "F. Selected Problems of Voluntary Employees' Beneficiary Associations (VEBAs)." Page 1. Accessed Nov. 4, 2021.

  2. Internal Revenue Service. "F. Selected Problems of Voluntary Employees' Beneficiary Associations (VEBAs)." Page 2. Accessed Nov. 4, 2021.

  3. IRS. "VEBA Reference Guide." See "Are life, sick, accident, or other similar benefits provided to members?" Accessed Nov. 4, 2021.

  4. Cornell Law School Legal Information Institute. "26 CFR § 1.501(c)(9)-3 - Voluntary Employees' Beneficiary Associations; Life, Sick, Accident, or Other Benefits." Accessed Nov. 4, 2021.

  5. VEBA.org. "Claims: How To File a Claim." Accessed Nov. 4, 2021.

Related Articles