HRA (Health Reimbursement Arrangement) VEBA (Voluntary Employee Benefit Association) plans have special tax treatments because the account balances are used solely for the purpose of paying for qualified health care expenses such as premiums, copays, deductibles, and pharmacy costs.
The special tax treatment is that contributions to VEBA are not subject to the social security, Medicare, or personal income taxes you normally pay on compensation. In addition, earnings on your contribution grow tax free and are not taxed when withdrawn.
Participation in a VEBA plan is determined by vote by members of your group and the results of the vote are binding on all members.
If your union does not vote to participate in HRA VEBA
Retiring employees will receive a cash-out of 25% of their accrued sick leave as compensation OR retiring employees may contribute up to 35% (See * below) of their accrued sick leave balance to their City Deferred Compensation Plan account. Contributions and earnings to Deferred Compensation account are federal income tax deferred, which means the money in your deferred compensation account is subject to federal income tax withholding when withdrawn. Contributions are subject to FICA taxes (7.65%).
Your union votes to participate in HRA VEBA
Retiring employees from the unions that have voted for HRA VEBA account must convert 35% of their sick leave balance into a VEBA account. Because of the special tax treatment, there are no exceptions or other options for the sick leave. Participation is mandatory.
Check your union's Eligibility Chart Effective 3/3/2014.
See the guidelines for converting unused sick leave balance upon retirement into either VEBA or Deferred Compensation
Here are the steps for establishing your VEBA account:
- Before you retire, complete and return an HRA VEBA enrollment kit to your Human Resources unit. If you do not submit the enrollment form, the entire sick leave balance will be forfeited.
- The City sends the enrollment form with the contribution to Rehn & Associates, the Third Party Administrator for HRA VEBA. The contribution occurs after you retire and will be sent to Rehn & Associates when all of your accrued leave balances are tallied, which is usually the pay period following your last regular paycheck.
- HRA VEBA will confirm by mail receipt of your contribution and that it was invested as indicated on the enrollment form. HRA VEBA will typically send confirmations within 5 business days of receipt of contributions. If you don't hear back from the third party administrator, Meritain Health, in five business days, contact your department's benefits representative.
- The HRA VEBA confirmation will include instructions on how to access withdrawals from your account along with other new member information.
- If you are enrolling in a City medical retiree plan and want to be
reimbursed by VEBA for the regular premium payment -
the Systematic Reimbursement Form
Request a letter from the Retirement Office (general retirees) or
Central Benefits (retiree COBRA participants) which includes:
name(s) of covered individual(s);
policy period; and
insurance provider name and address.
Submit the form and letter to Meritain at HRA VEBA Third-party
Health, PO Box 27810, Minneapolis, MN
Meritain will notify you once they have set up the regular reimbursement process, usually within two weeks of receipt of the systematic reimbursement form and letter about your Medicare plan.