VEBA student loan service is nonqualifying but de minimis

Plain-English summary

A voluntary employees' beneficiary association proposed offering members an online service that helps with student loan repayment and forgiveness programs. The trust asked the IRS to treat the service as a permissible other benefit or, alternatively, to rule that spending no more than 3 percent of annual benefit expenditures on it would be harmless. The IRS ruled that the service is not a qualifying other benefit because it does not protect against a contingency that interrupts or impairs earning power. It nevertheless ruled that the benefit will not jeopardize the trust's Section 501(c)(9) exemption if total spending on it and all other nonqualifying benefits stays at or below 3 percent of annual benefit expenditures. The conclusion depends on the trust's facts remaining materially unchanged.

Ruling snapshot

• Question: May a VEBA provide a student loan servicing tool without losing its tax exemption?
• Outcome: Mixed. The tool is not a qualifying benefit, but expenditures at or below the stated de minimis limit will not adversely affect exemption.
• Key authorities: IRC §§ 501(a), 501(c)(9); Treas. Reg. §§ 1.501(c)(9)-1(c), 1.501(c)(9)-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202125002 Third Party Communication: None
Release Date: 6/25/2021 Date of Communication: Not Applicable
Index Number: 501.09-00, 501.09-01
Person To Contact:
---------------------------------- ---------------------,ID No. -----------------
----------------------------------------- Telephone Number:
------------------------------------- --------------------
-------------------------------- Refer Reply To:
CC:EEE:EB:HW
PLR-120713-20
Date:
March 23, 2021

Legend

Association = ------------------------------------------

Trust = ------------------------------------------

Date X = --------------------------

Date Y = ---------------------------

Plan Year Z = ---------------------------------------

x = ------------------

y = -------------

Dear --------------------:

This is in response to a letter dated September 21, 2020, supplemented by
correspondence dated December 14, 2020, in which Trust’s legal representative
requested rulings that the provision of a student loan servicing benefit described below
will not adversely affect Trust’s tax exempt status under section 501(c)(9) of the Internal
Revenue Code (“Code”).

FACTS

Trust was established by Association, a labor organization, on Date X. Trust received a
determination letter from the Internal Revenue Service, dated Date Y, stating that it was
a voluntary employees’ beneficiary association (“VEBA”) under section 501(c)(9) of the
Code. Trust provides certain benefits in the event of life, death, accident, sickness,
PLR-120713-20 2

disability or other occurrence affecting participants and their families either on a self-
funded basis or through one or more insurance policies acquired and maintained by the
Trustees.

Trust proposes to offer a student loan servicing benefit to its members in addition to the
benefits described above. Trust describes the benefit as an online tool that assists
members with complying with certain government loan subsidy programs. Trust
represents that the online tool calculates optimal forgiveness and repayment programs
based on individual member data. Trust represents that the online tool electronically
fills in required repayment paperwork, routes and files the member’s applications
digitally and provides reminders to ensure that members stay in compliance with
reporting requirements. Trust further represents that the online tool also provides
members with a financial literacy course that teaches members about government loan
programs such as the Public Service Loan Forgiveness Program administered by the
Department of Education.

Trust represents that in Plan Year Z, the student loan servicing benefit will be offered to
members who are participants in any of the complimentary life insurance or introductory
life insurance products provided by Trust. Trust represents that the benefit will be
provided to those eligible participants on a one-time only basis, although it will continue
to be provided to new eligible participants in subsequent plan years. Trust’s budget for
Plan Year Z projects that a total of x will be spent on benefits excluding the student loan
servicing benefit. Trust represents that the student loan servicing benefit in Plan Year Z
will be y and anticipates that this cost will remain the same in subsequent years. Trust
represents that the student loan servicing benefit would be approximately .51% of the
total benefits paid by Trust in Plan Year Z. Trust projects that the number of new
eligible participants in subsequent plan years will be less than the number of new
eligible participants in Plan Year Z. Accordingly, Trust represents that the cost of
student loan servicing benefits will almost certainly never be more than 3% of Trust’s
annual expenditures.

RULINGS REQUESTED

Trust requests the following rulings:

1. That the proposed student loan servicing benefit constitutes a permissible “other
   benefit” within the meaning of Treas. Reg. § 1.509(c)(9)-3(d) and therefore, its
   provision will not cause Trust to lose its tax-exempt status under section 501(a) of
   the Code as an organization described in section 501(c)(9) of the Code; or

2. In the alternative, that the provision of no more than 3% of annual expenditures on
   the student loan servicing benefit is de minimis and will not cause Trust to lose its
   tax-exempt status under section 501(a) of the Code as an organization described in
   section 501(c)(9) of the Code.
   PLR-120713-20 3

LAW

Section 501(c)(9) of the Code provides that organizations exempt from income tax
under section 501(a) of the Code include a voluntary employees’ beneficiary association
providing for the payment of life, sick, accident or other benefits to members of such
association or their dependents or designated beneficiaries, if no part of net earnings of
such association inures (other than through such payments) to the benefit of any private
shareholder or individual.

Treas. Reg. § 1.501(c)(9)-1(c) provides that a voluntary employees’ beneficiary
association must provide for the payment of life, sick, accident, or other benefits to its
members, their dependents, or their designated beneficiaries, and substantially all of its
operations must be in furtherance of providing such benefits.

Treas. Reg. § 1.501(c)(9)-3(a) provides, in relevant part, that a voluntary employees'
beneficiary association is not operated for the purpose of providing life, sick, accident,
or other benefits unless substantially all of its operations are in furtherance of the
provision of such benefits. Further, an organization is not described in this section if it
systematically and knowingly provides benefits of more than a de minimis amount that
are not permitted by paragraphs (b), (c), (d), or (e) of this section.

Treas. Reg. § 1.501(c)(9)-3(b) provides, in relevant part, that the term “life benefits”
means a benefit payable by reason of the death of a member or dependent.

Treas. Reg. § 1.501(c)(9)-3(c) provides, in relevant part, that the term “sick and accident
benefits” means amounts furnished to or on behalf of a member or a member’s
dependents in the event of illness or personal injury of a member or dependent.

Treas. Reg. § 1.501(c)(9)-3(d) provides, in relevant part, that the term “other benefits”
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 it protects against a contingency that
interrupts or impairs a member’s earning power.

Treas. Reg. § 1.501(c)(9)-3(e) provides, in relevant part, that the provision of job
readjustment allowances, income maintenance payments in the event of economic
dislocation, temporary living expense loans and grants at times of disaster (such as fire
or flood), supplemental unemployment compensation benefits, certain severance
benefits, and education or training benefits or courses (such as apprenticeship training
programs) for members, are considered other benefits because they protect against a
contingency that interrupts earning power.

Treas. Reg. § 1.501(c)(9)-3(f) provides examples of nonqualifying benefits that are not
other benefits described in paragraphs (d) or (e).
PLR-120713-20 4

ANALYSIS AND CONCLUSION

Treas. Reg. § 1.501(c)(9)-3(a) provides that substantially all of a VEBA’s operations
must be in furtherance of providing benefits such as life, sick, accident, or other benefits
to its members, their dependents, or their designated beneficiaries. Treas. Reg.
§ 1.509(c)(9)-3(d) provides that the term “other benefits” includes only benefits that are
similar to life, sick, or accident benefits if they are intended to safeguard or improve the
health of a member or a member’s dependents, or they protect against a contingency
that interrupts or impairs a member’s earning power. Pursuant to Treas. Reg.
§ 1.501(c)(9) -3(a), an organization is not a VEBA described under section 501(c)(9) of
the Code if it systematically and knowingly provides benefits of more than a de minimis
amount that are not life, sick, accident or other benefits.

Treas. Reg. § 1.501(c)(9)-3(e) provides that “other benefits” include certain benefits that
protect against contingencies that interrupt or impair earning power, such as job
readjustment allowances, income maintenance payments in the event of economic
dislocation, temporary living expense loans and grants at times of disaster (such as fire
or flood), supplemental unemployment compensation benefits, certain severance
benefits, and education or training benefits or courses (such as apprenticeship training
programs).

Based on the information submitted by Trust, we conclude that the proposed student
loan servicing benefit is not an “other benefit” within the meaning of section 501(c)(9) of
the Code and Treas. Reg. § 1.501(c)(9)-3 because it does not protect against a
contingency that interrupts or impairs earning power.

Trust represents that the proposed annual expenditure for the student loan servicing
benefit is approximately .51% of Trust’s annual benefit expenditures. Therefore,
provided the total annual expenditure for the student loan service benefit (together with
any other nonqualifying benefits provided by the Trust) does not exceed 3% of Trust’s
annual benefit expenditures, the provision of the student loan servicing benefit is de
minimis and would not adversely affect Trust’s tax-exempt status under section
501(c)(9) of the Code.

This ruling is conditioned on the understanding that there will be no material changes in
the facts upon which it is based.

This ruling is directed only to the organization that requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.
PLR-120713-20 5

The rulings set forth in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

                                Sincerely,



                                Dara Alderman
                                Senior Counsel, Health & Welfare Branch
                                Office of Associate Chief Counsel
                                (Employee Benefits, Exempt Organizations, and
                                Employment Taxes)cc:

cc: