Opinion ID: 568068
Heading Depth: 2
Heading Rank: 3

Heading: Benefits Under The Plan

Text: 25 The statute, echoed by the regulations, specifies that a VEBA may provide for the payment of life, sick, accident, or other benefits to its members. 26 U.S.C. § 501(c)(9); 26 C.F.R. § 1.501(c)(9)-1(c). Lima Trust's Plan provides that its benefits are payable upon an employee's termination of employment with the Employer for any reason, unless the termination results from the employee's death or discharge for certain causes. While this provision is referred to as severance, Lima Trust acknowledges that it is payable upon an employee's retirement as well as termination for other reasons. In the tax year in question, Ms. Gertrude Goodwine, one of the four support staff employees, retired. She received benefit payments from Lima Trust the following year. 26 No argument has been made that the severance payments provided under the Plan qualify as life, sick, or accident benefits. The dispute, then, turns on whether they qualify as other benefits. The Commissioner in his regulations, 26 C.F.R. § 1.501(c)(9)-3(d), states that the term includes only benefits that are similar to life, sick, or accident benefits. A benefit is similar to a life, sick, or accident benefit if ... it is intended to safeguard or improve the health of a member or a member's dependents, or ... [i]t protects against a contingency that interrupts or impairs a member's earning power. He gives various examples of qualifying benefits, such as vacation benefits, subsidizing athletic programs and child care. 27 The Commissioner also spells out examples of what does not qualify--examples include commuting expenses and malpractice insurance. Prominent in the list of nonqualifiers is any benefit that is similar to a pension or annuity payable at the time of mandatory or voluntary retirement.... Further says the Commissioner, a benefit will be considered similar to that provided under a pension [or] annuity ... plan if it provides for deferred compensation that becomes payable by reason of the passage of time, rather than as a result of an unanticipated event. The reason for this position is understandable. Another part of the tax law, subchapter D, section 401 et seq. of title 26, provides in detail for deferred compensation plans, and includes extensive restrictions governing vesting, nondiscrimination, and other aspects of qualified retirement plans. These restrictions are not applicable to a VEBA. 28 The Commissioner supports this policy by reference to the legislative history of VEBAs, going back to the Revenue Act of 1928, ch. 852, § 103, 45 Stat. 791, 812. 3 He argues that the Treasury Regulations' exclusion of retirement benefits from the definition of permissible other benefits represents a reasonable construction of the statute, one that has been sustained by the courts. See Canton Police Benevolent Assoc. v. United States, 844 F.2d 1231 (6th Cir.1988). He notes that this construction is consistent with the principle of ejusdem generis, and is supported by the Congress' elaborate scheme for deferred compensation and retirement plans. 29 In this case, the taxpayer acknowledges that retirement is one of the several types of terminations that will trigger benefits under the Plan. The trial judge found that one of the important purposes of the Plan is to pay benefits to eligible members upon their retirement. As in a pension or annuity plan, the benefits are computed based on the employee's salary and length of service. The record reflects that the only participant to obtain benefits under the Plan did so upon retirement. And it is not irrelevant that when the Plan was adopted and the trust created pursuant thereto, the Employer ended its previously-existing pension plan. We agree with the trial judge that the Plan in issue here, by paying retirement benefits as part and parcel of its alleged severance pay plan, is both organized and operated to provide nonqualifying benefits. Lima Surgical, 20 Cl.Ct. at 685 (emphasis in original).