CSFS Course 7
MEWA and VEBA
Multiple employer welfare arrangements and voluntary employees’ beneficiary associations: what they are, how they are regulated, and why both attract more scrutiny than a single-employer plan.
225 practice questions · page 5 of 5, questions 201–225 · answers and explanations included · updated September 2026
25 questions on this page 5 of 5, each with the answer and the reasoning behind it. Read straight through, or quiz yourself on them and the ones you miss stay in rotation until you get them right.
- 201
Which of the following is one of the three general nondiscrimination principles applicable to VEBAs as described in the course?
- •The plan must cap individual benefits at no more than 200% of the average benefit paid to all participants
- •The plan must not discriminate in favor of highly compensated employees concerning eligibility to participate
- •The plan must provide identical dollar amounts of coverage to every participant regardless of salary
- •The plan must restrict HCE participation to no more than 25% of total plan enrollment
Show answer
The plan must not discriminate in favor of highly compensated employees concerning eligibility to participate
The course lists three general nondiscrimination principles for VEBAs: (1) eligibility to participate must not discriminate in favor of HCEs, (2) benefits, rights, and features must be provided in a nondiscriminatory manner, and (3) contributions and benefits must not discriminate in favor of HCEs. The standard is nondiscrimination, not specific numerical caps.
- 202
A VEBA's nondiscrimination testing reveals that its contributions and benefits test shows a pattern of higher employer contributions for highly compensated employees. What consequence does the course identify?
- •Failure to comply with nondiscrimination rules can result in adverse tax consequences for the VEBA and potentially for the HCEs or key employees benefiting disproportionately from the plan
- •Only the VEBA trustees face personal tax liability; the HCEs' benefits remain tax-exempt
- •The IRS imposes a 15% excise tax on the VEBA's total assets as a penalty for discriminatory practices
- •The VEBA must immediately cease all benefit payments until a corrective amendment is filed with the IRS
Show answer
Failure to comply with nondiscrimination rules can result in adverse tax consequences for the VEBA and potentially for the HCEs or key employees benefiting disproportionately from the plan
The course states that failure to comply with nondiscrimination rules can result in adverse tax consequences for the VEBA and potentially for the HCEs or key employees benefiting disproportionately from the plan. The course does not specify excise taxes or cessation of benefits as consequences.
- 203
According to the course, what must organizations sponsoring VEBAs do to demonstrate compliance with IRS nondiscrimination rules?
- •Hire an independent enrolled actuary to certify nondiscrimination compliance on a triennial basis
- •Obtain a determination letter from the IRS confirming nondiscriminatory status before each plan year
- •Periodically perform nondiscrimination tests analyzing both the plan's terms and its operational practices, and maintain detailed records of testing procedures, eligibility criteria, and benefits provided
- •Submit annual nondiscrimination test results directly to the IRS along with Form 990
Show answer
Periodically perform nondiscrimination tests analyzing both the plan's terms and its operational practices, and maintain detailed records of testing procedures, eligibility criteria, and benefits provided
The course states that organizations sponsoring VEBAs must periodically perform nondiscrimination tests to ensure compliance. These tests analyze both the plan's terms and its operational practices. VEBAs must also maintain detailed records of their testing procedures, eligibility criteria, and benefits provided to demonstrate compliance with IRS nondiscrimination rules.
- 204
Key employees in the context of VEBA nondiscrimination testing are identified based on which criteria?
- •Criteria such as ownership interest and compensation levels, reflecting their position to exercise significant control over the business
- •Job title and the number of direct reports under their supervision
- •Whether they are included on the VEBA's board of trustees or serve as plan fiduciaries
- •Years of service with the employer and total accumulated benefits under the plan
Show answer
Criteria such as ownership interest and compensation levels, reflecting their position to exercise significant control over the business
The course defines key employees as those in a position to exercise significant control over the business, identified based on criteria such as ownership interest and compensation levels. This is distinct from HCEs, who are typically identified by ownership percentage or compensation above a specific threshold.
- 205
Which of the following is NOT listed as a form that disproportionate benefits can take in a VEBA?
- •Eligibility criteria that inadvertently favor higher earners or key employees
- •Higher contribution rates for highly compensated employees
- •Lower deductibles for employees in geographically remote locations
- •More generous benefit packages for key employees
Show answer
Lower deductibles for employees in geographically remote locations
The course lists three forms of disproportionate benefits: higher contribution rates for HCEs, more generous benefit packages, or eligibility criteria that inadvertently favor higher earners or key employees. Geographic accommodation for remote employees is not listed as a form of disproportionate benefit.
- 206
A VEBA fails its nondiscrimination test due to disproportionate benefits favoring HCEs. According to the course, which of the following corrective measures might be required?
- •Converting the VEBA from a 501(c)(9) to a 501(c)(4) organization to avoid the nondiscrimination requirement
- •Dissolving the VEBA within 60 days and distributing all remaining assets to the federal government
- •Filing an amended Form 1024 with the IRS requesting a waiver of the nondiscrimination rules for two years
- •Refunding excess contributions to HCEs, increasing contributions for non-HCEs, or making other adjustments to restore nondiscriminatory status
Show answer
Refunding excess contributions to HCEs, increasing contributions for non-HCEs, or making other adjustments to restore nondiscriminatory status
The course states that plans failing nondiscrimination tests due to disproportionate benefits often must take corrective measures including refunding excess contributions to HCEs, increasing contributions for non-HCEs, or making other adjustments to ensure compliance with nondiscrimination requirements.
- 207
What is the consequence if a VEBA is found to provide disproportionate benefits to HCEs or key employees?
- •Only the HCEs face tax consequences; the plan itself retains its tax-exempt status
- •The IRS imposes a flat 20% penalty on total plan assets and requires immediate dissolution
- •The plan could lose its tax-qualified status, resulting in tax consequences for both the plan and its participants, and may be required to adjust contribution formulas or benefit structures
- •The plan is placed in IRS receivership until a court-appointed administrator restores compliance
Show answer
The plan could lose its tax-qualified status, resulting in tax consequences for both the plan and its participants, and may be required to adjust contribution formulas or benefit structures
The course states that if a plan is found to provide disproportionate benefits to HCEs or key employees, it could lose its tax-qualified status, resulting in tax consequences for both the plan and its participants. Additionally, the plan may be required to make adjustments such as altering contribution formulas or benefit structures to restore nondiscriminatory status.
- 208
What does geographic commonality mean in the context of association-sponsored VEBAs?
- •The requirement that all VEBA claims be processed by an administrator located within the same geographic region as the plan sponsor
- •The requirement that the VEBA offer identical benefits in every state where it has members
- •The requirement that the VEBA's trust assets be held in a financial institution located in the same state as the majority of members
- •The requirement that VEBA members share a common geographic location, such as a city, county, or state, to ensure a clear connection among members
Show answer
The requirement that VEBA members share a common geographic location, such as a city, county, or state, to ensure a clear connection among members
The course defines geographic commonality as the requirement that members of a VEBA share a common geographic location — such as a city, county, or state — to ensure the VEBA serves a community of members who have a clear connection to one another, enhancing the feasibility and effectiveness of providing welfare benefits.
- 209
The IRS scrutinizes association-sponsored VEBAs for a specific concern beyond the common bond requirements. What is this concern?
- •The IRS scrutinizes whether the association charges membership dues that exceed the VEBA's annual per-member administrative costs
- •The IRS scrutinizes whether the association has existed for at least ten years before sponsoring a VEBA
- •The IRS scrutinizes whether the association-sponsored VEBA is a genuine employee welfare benefit plan serving members with legitimate common bonds, rather than merely a marketing arrangement
- •The IRS scrutinizes whether the association's articles of incorporation specifically mention Section 501(c)(9)
Show answer
The IRS scrutinizes whether the association-sponsored VEBA is a genuine employee welfare benefit plan serving members with legitimate common bonds, rather than merely a marketing arrangement
The course states that the IRS scrutinizes association-sponsored VEBAs to ensure that they are not merely marketing arrangements, but genuine employee welfare benefit plans serving members with legitimate common bonds.
- 210
Employment commonality for association-sponsored VEBAs can manifest in several ways. Which of the following is NOT an example given in the course?
- •Being employees of the same employer
- •Being members of the same trade or profession
- •Being part of the same industry
- •Having the same number of years of professional experience
Show answer
Having the same number of years of professional experience
The course lists employment commonality examples as: being employees of the same employer, members of the same trade or profession, or part of the same industry. Years of professional experience is not listed as a form of employment commonality.
- 211
Which of the following is NOT listed in the course as a key responsibility of VEBA trustees?
- •Acting in the best interest of plan participants and beneficiaries with a high standard of care and loyalty
- •Ensuring the plan complies with all relevant laws and regulations, including nondiscrimination testing
- •Managing the plan's assets prudently, considering diversification, risk, and return
- •Negotiating collective bargaining agreements on behalf of plan participants
Show answer
Negotiating collective bargaining agreements on behalf of plan participants
The course lists numerous trustee responsibilities including fiduciary duty, plan administration, investment management, compliance, maintaining tax-exempt status, benefit determinations, communicating with participants, handling disputes and appeals, and vendor oversight. Negotiating collective bargaining agreements is not listed as a trustee responsibility.
- 212
A VEBA trustee delegates investment management to a third-party firm. According to the course, which ongoing obligation does the trustee retain?
- •The trustee is fully relieved of fiduciary responsibility once a qualified investment manager is appointed
- •The trustee must obtain IRS pre-approval before delegating any investment management authority
- •The trustee must personally approve each individual investment transaction made by the firm
- •The trustee retains responsibility for selecting competent providers and monitoring their performance
Show answer
The trustee retains responsibility for selecting competent providers and monitoring their performance
The course states that if the plan uses third-party service providers or vendors, trustees are responsible for selecting competent providers and monitoring their performance. Delegation does not relieve the trustee of oversight responsibility.
- 213
The course identifies a specific responsibility of VEBA trustees related to the VEBA's tax status. Which of the following best describes this duty?
- •Trustees must contribute personal funds to the VEBA to cover any UBIT liability before the annual filing deadline
- •Trustees must file for a new determination letter every three years to reconfirm the VEBA's tax-exempt status
- •Trustees must maintain tax-exempt status by operating the plan in accordance with IRS regulations, including the exclusive benefit rule and the prohibition on inurement to any private individual
- •Trustees must obtain written IRS approval before amending any benefit provision that could affect tax-exempt status
Show answer
Trustees must maintain tax-exempt status by operating the plan in accordance with IRS regulations, including the exclusive benefit rule and the prohibition on inurement to any private individual
The course states that since VEBAs are tax-exempt under Section 501(c)(9), trustees have the responsibility to maintain this status by operating the plan in accordance with IRS regulations, including the exclusive benefit rule and the prohibition on inurement to any private individual.
- 214
According to the course, what is the plan administrator's role regarding Form 5500 and summary plan descriptions?
- •The plan administrator delegates all filing responsibilities to the VEBA's external auditor and has no direct involvement
- •The plan administrator distributes summary plan descriptions only to new enrollees, not to existing participants
- •The plan administrator ensures compliance by completing and filing required reports such as Form 5500 and distributing summary plan descriptions and summaries of material modifications to participants
- •The plan administrator files Form 5500 only in years when the plan's assets exceed $5 million
Show answer
The plan administrator ensures compliance by completing and filing required reports such as Form 5500 and distributing summary plan descriptions and summaries of material modifications to participants
The course states that the plan administrator ensures compliance with applicable laws by completing and filing required reports and disclosures, such as the Form 5500 Annual Return/Report, and distributes summary plan descriptions, summaries of material modifications, and other necessary information to participants.
- 215
In a small VEBA where the same individuals serve as both trustees and plan administrators, the course notes an important distinction. Which statement best captures the relationship between these roles?
- •Although responsibilities may overlap and be filled by the same individuals, the plan administrator has distinct duties outlined by the plan documents and regulated under ERISA, including daily management, claims processing, and participant communications
- •The IRS requires separate individuals for each role and will deny tax-exempt status if the same person holds both positions
- •The plan administrator role applies only to VEBAs with 100 or more participants; smaller plans need only trustees
- •When the same individuals fill both roles, the plan administrator function is legally absorbed into the trustee role and ceases to exist separately
Show answer
Although responsibilities may overlap and be filled by the same individuals, the plan administrator has distinct duties outlined by the plan documents and regulated under ERISA, including daily management, claims processing, and participant communications
The course states that although some responsibilities may overlap with those of trustees (especially in smaller plans where roles might be filled by the same individuals or entities), the plan administrator typically has distinct duties outlined by the plan documents and regulated under ERISA.
- 216
Who typically controls a VEBA according to the course?
- •The entity that establishes it, which can be the employer, an employee organization, or both
- •The IRS, through a designated compliance officer assigned to the VEBA at formation
- •The state insurance commissioner in the state where the VEBA's trust is domiciled
- •The VEBA's third-party administrator, who assumes operational control upon plan implementation
Show answer
The entity that establishes it, which can be the employer, an employee organization, or both
The course states that control over a VEBA typically rests with the entity that establishes it, which can be the employer, an employee organization, or both. The governing body or committee is tasked with ensuring compliance, managing finances, and overseeing the provision of benefits.
- 217
For VEBAs operating in conjunction with MEWAs, what determines whether the MEWA is considered a welfare benefit fund?
- •The level of control and association among the participating employers, and whether the MEWA is controlled and maintained by the participating employers or an employee organization
- •Whether at least 75% of the MEWA's participating employers are located in the same state
- •Whether the MEWA has obtained a separate tax-exempt determination from the IRS under Section 501(c)(5)
- •Whether the MEWA's total claims paid in the prior year exceeded $1 million
Show answer
The level of control and association among the participating employers, and whether the MEWA is controlled and maintained by the participating employers or an employee organization
The course states that for VEBAs operating in conjunction with MEWAs, the MEWA should be controlled and maintained by the participating employers or an employee organization, and the level of control and association among the employers can impact whether the MEWA is considered a welfare benefit fund.
- 218
Which of the following is the correct IRS form used to apply for tax-exempt status under Section 501(c)(9) for a VEBA?
- •Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3)
- •Form 1023, Application for Recognition of Exemption Under Section 501(c)(3)
- •Form 1024, Application for Recognition of Exemption Under Section 501(a)
- •Form 990, Return of Organization Exempt From Income Tax
Show answer
Form 1024, Application for Recognition of Exemption Under Section 501(a)
The course states that to apply for tax-exempt status, a VEBA must submit Form 1024, Application for Recognition of Exemption Under Section 501(a), to the IRS. Form 1023 and 1023-EZ are for 501(c)(3) organizations, and Form 990 is an annual reporting form, not an application.
- 219
A group is establishing a new VEBA. According to the course, which of the following represents the correct sequence of early formation steps?
- •Apply for an EIN, submit Form 1024, receive IRS approval, then draft the plan document and trust agreement
- •Draft a plan document, establish a trust agreement, incorporate if required by state law, apply for an EIN, then submit Form 1024 to the IRS with all required documentation and the user fee
- •Incorporate as a for-profit entity, apply for an EIN, convert to nonprofit status, then submit Form 990
- •Submit Form 1024 with a preliminary plan description, receive conditional approval, then draft the full plan document and trust agreement
Show answer
Draft a plan document, establish a trust agreement, incorporate if required by state law, apply for an EIN, then submit Form 1024 to the IRS with all required documentation and the user fee
The course outlines the steps for creating a VEBA: draft a plan document, establish a trust agreement (if applicable), incorporate (if required), apply for an EIN, apply for tax-exempt status by submitting Form 1024 with all required documentation including the plan document, trust agreement, articles of incorporation, bylaws, and the user fee.
- 220
The course lists several documents that must accompany the Form 1024 submission. Which of the following is NOT listed as required documentation?
- •A detailed description of the benefits to be provided and the user fee for application processing
- •An actuarial certification of projected plan costs for the first three years
- •Articles of incorporation and bylaws
- •The plan document and trust agreement (if applicable)
Show answer
An actuarial certification of projected plan costs for the first three years
The course states that Form 1024 must be accompanied by the plan document, trust agreement (if applicable), articles of incorporation, bylaws, a detailed description of the benefits to be provided, and the user fee for application processing. An actuarial certification of projected plan costs is not listed.
- 221
Upon dissolution of a 501(c)(9) VEBA, to whom may remaining assets be distributed according to IRS stipulations?
- •Exclusively to the sponsoring employer as a return of contributed capital
- •For one or more exempt purposes within the meaning of Section 501(c)(9), or to the federal government, or to a state or local government for a public purpose
- •Only to the individual members on a pro rata basis regardless of the plan document's terms
- •To any 501(c)(3) charitable organization selected by the plan administrator
Show answer
For one or more exempt purposes within the meaning of Section 501(c)(9), or to the federal government, or to a state or local government for a public purpose
The course states that upon dissolution, the IRS stipulates that the assets of a 501(c)(9) VEBA must be distributed for one or more exempt purposes within the meaning of Section 501(c)(9), or to the federal government, or to a state or local government for a public purpose.
- 222
A VEBA that provided retiree health benefits is being dissolved. According to the course, what specific obligation must be addressed regarding these benefits?
- •Adequate provisions must be made to cover long-term obligations such as retiree health benefits that extend into the future
- •Retiree health benefits automatically transfer to the sponsoring employer's active employee plan upon dissolution
- •The IRS requires the VEBA to purchase a fully insured annuity contract for each retiree before dissolving
- •The VEBA may terminate retiree health benefits immediately upon filing its final Form 990 with no further obligation
Show answer
Adequate provisions must be made to cover long-term obligations such as retiree health benefits that extend into the future
The course states that if the VEBA provides benefits that extend into the future, such as retiree health benefits, adequate provisions must be made to cover these long-term obligations. This is identified as a primary concern during the dissolution process.
- 223
Under what conditions may remaining assets of a dissolving VEBA revert to the sponsoring employer?
- •Automatically upon dissolution, as the employer retains residual ownership of all trust assets
- •If allowed by the VEBA's plan documents and not prohibited by law, though this is subject to strict IRS rules and may have significant tax implications
- •Never — IRS regulations categorically prohibit any reversion of VEBA assets to the sponsoring employer
- •Only if the employer has made contributions exceeding the total benefits paid during the VEBA's existence
Show answer
If allowed by the VEBA's plan documents and not prohibited by law, though this is subject to strict IRS rules and may have significant tax implications
The course states that in some cases, remaining assets may revert to the sponsoring employer, if allowed by the VEBA's plan documents and not prohibited by law. However, this is subject to strict IRS rules and may have significant tax implications.
- 224
What filings does the IRS require when a 501(c)(9) VEBA is terminated or dissolved?
- •A closing agreement with the IRS National Office and a final actuarial valuation report
- •Notification of the termination or dissolution, a final Form 990, and potentially other forms detailing the dissolution process
- •Only a final Form 5500; no notification to the IRS is required for tax-exempt organizations
- •Only a letter to the local IRS district office; no formal filings are required
Show answer
Notification of the termination or dissolution, a final Form 990, and potentially other forms detailing the dissolution process
The course states that the IRS requires notification of the termination or dissolution of a 501(c)(9) organization, along with a final Form 990 and potentially other forms detailing the dissolution process. For VEBAs subject to ERISA, there are also specific notification and filing requirements with the DOL.
- 225
Which version of Form 990 a VEBA must file depends on what factors?
- •All VEBAs must file the full Form 990 regardless of size; the shorter versions are not available to 501(c)(9) organizations
- •The number of participating employers determines the form version, with multi-employer VEBAs always filing the full Form 990
- •The type of benefits provided determines the version, with life insurance VEBAs filing 990-EZ and medical VEBAs filing the full 990
- •The VEBA's gross receipts and total assets determine whether it files Form 990, 990-EZ, or 990-N
Show answer
The VEBA's gross receipts and total assets determine whether it files Form 990, 990-EZ, or 990-N
The course states that Form 990 provides information about the VEBA's finances, operations, and compliance with tax-exempt status requirements. The specific version to be filed (Form 990, 990-EZ, or 990-N) depends on the VEBA's gross receipts and total assets.
CSFS is the Certified Self-Funding Specialist designation. These are my own practice questions, written while studying for the exam. This site is not affiliated with, endorsed by, or connected to the organisation that administers the CSFS designation, and nothing here is official exam content or a substitute for the course material.
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