1.501(c)(9)-3. Voluntary employees' beneficiary
associations; life, sick, accident, or other benefits
(a) In general. --The life, sick, accident, or other benefits
provided by a voluntary employee's beneficiary association must
be payable to its members, their dependents, or their designated
beneficiaries. For purposes of section 501(c)(9), "dependent"
means the member's spouse; any child of the member or the member's
spouse who is a minor or a student (within the meaning of section
151(e)(4)); any other minor child residing with the member;
and any other individual who an association, relying on information
furnished to it by a member, in good faith believes is a person
described in section 152(a). Life, sick, accident, or other
benefits may take the form of cash or noncash benefits. 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 paragraph (b), (c), (d), or (e) of this section.
(b) Life benefits. --The term "life benefit"
means a benefit (including a burial benefit or a wreath) payable
by reason of the death of a member or dependent. A "life
benefit" may be provided directly or through insurance.
It generally must consist of current protection, but also may
include a right to convert to individual coverage on termination
of eligibility for coverage through the association, or a permanent
benefit as defined in, and subject to the conditions in, the
regulations under section 79. A "life benefit" also
includes the benefit provided under any life insurance contract
purchased directly from an employee-funded association by a
member or provided by such an association to a member. The term
"life benefit" does not include a pension, annuity
or similar benefit, except that a benefit payable by reason
of the death of an insured may be settled in the form of an
annuity to the beneficiary in lieu of a lump-sum death benefit
(whether or not the contract provides for settlement in a lump
sum).
(c) Sick and accident benefits. --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 to a member or dependent. Such benefits
may be provided through reimbursement to a member or a member's
dependents for amounts expended because of illness or personal
injury, or through the payment of premiums to a medical benefit
or health insurance program. Similarly, a sick and accident
benefit includes an amount paid to a member in lieu of income
during a period in which the member is unable to work due to
sickness or injury. Sick benefits also include benefits designed
to safeguard or improve the health of members and their dependents.
Sick and accident benefits may be provided directly by an association
to or on behalf of members and their dependents, or may be provided
indirectly by an association through the payment of premiums
or fees to an insurance company, medical clinic, or other program
under which members and their dependents are [is] entitled to
medical services or to other sick and accident benefits. Sick
and accident benefits may also be furnished in noncash form,
such as, for example, benefits in the nature of clinical care
services by visiting nurses, and transportation furnished for
medical care.
(d) Other benefits. --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 --
(1) It is intended to safeguard or improve the
health of a member or a member's dependents, or
(2) It protects against a contingency that interrupts
or impairs a member's earning power.
(e) Examples of "other benefits".
--Paying vacation benefits, providing vacation facilities, reimbursing
vacation expenses, and subsidizing recreational activities such
as athletic leagues are considered "other benefits".
The provision of child-care facilities for preschool and school-age
dependents is also considered "other benefits". 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 (as
defined in section 501(c)(17)(D)(i) of the Code), severance
benefits (under a severance pay plan within the meaning of 29
CFR §2510.3-2(b)) and education or training benefits or
courses (such as apprentice training programs) for members,
are considered "other benefits" because they protect
against a contingency that interrupts earning power. Personal
legal service benefits which consist of payments or credits
to one or more organizations or trusts described in section
501(c)(20) are considered "other benefits". Except
to the extent otherwise provided in these regulations, as amended
from time to time, "other benefits" also include any
benefit provided in the manner permitted by paragraphs (5) et
seq. of section 302(c) of the Labor Management Relations Act
of 1947, 61 Stat. 136, as amended, 29 U.S.C. 186(c) (1979).
(f) Examples of nonqualifying benefits. --Benefits
that are not described in paragraphs (d) or (e) of this section
are not "other benefits". Thus, "other benefits"
do not include the payment of commuting expenses, such as bridge
tolls or train fares, the provision of accident or homeowner's
insurance benefits for damage to property, the provision of
malpractice insurance, or the provision of loans to members
except in times of distress (as permitted by §1.501(c)(9)-3(e)).
"Other benefits" also do not include the provision
of savings facilities for members. The term "other benefits"
does not include any benefit that is similar to a pension or
annuity payable at the time of mandatory or voluntary retirement,
or a benefit that is similar to the benefit provided under a
stock bonus or profit-sharing plan. For purposes of section
501(c)(9) and these regulations, a benefit will be considered
similar to that provided under a pension, annuity, stock bonus
or profit-sharing plan if it provides for deferred compensation
that becomes payable by reason of the passage of time, rather
than as the result of an unanticipated event. Thus, for example,
supplemental unemployment benefits, which generally become payable
by reason of unanticipated layoff, are not, for purposes of
these regulations, considered similar to the benefit provided
under a pension, annuity, stock bonus or profit-sharing plan.
(g) Examples. --The provisions of this section
may be further illustrated by the following examples:
Example (1). V was organized in connection with
a vacation plan created pursuant to a collective bargaining
agreement between M, a labor union, which represents certain
hourly paid employees of T corporation, and T. The agreement
calls for the payment by T to V of a specified sum per hour
worked by T employees who are covered by the collective bargaining
agreement. T includes the amounts in the covered employees'
wages and withholds income and FICA taxes. The amounts are paid
by T to V to provide vacation benefits provided under the collective
bargaining agreement. Generally, each covered employee receives
a check in payment of his or her vacation benefit during the
year following the year in which contributions were made by
T to V. The amount of the vacation benefit is determined by
reference to the contributions during the prior year to V by
T on behalf of each employee, and is distributed in cash to
each such employee. If the earnings on investments by V during
the year preceding distribution are sufficient after deducting
the expenses of administering the plan, each recipient of a
vacation benefit is paid an amount, in addition to the contributions
on his or her behalf, equal to his/her ratable share of the
net earnings of V during such year. The plan provides a vacation
benefit that constitutes an eligible "other benefit"
described in section 501(c)(9) and §1.501(c)(9)-3(e).
Example (2). The facts are the same as in Example
1, except that each covered employee of T is entitled, at his
or her discretion, to contribute up to an additional $1,000
each year to V, which agrees in respect of such sum to pay interest
at a stated rate from the time of contribution until the time
at which the contributing employee's vacation benefit is distributed.
In addition, each employee may elect to leave all or a portion
of his/her distributable benefit on deposit past the time of
distribution, in which case interest will continue to accrue.
Because the plan more closely resembles a savings arrangement
than a vacation plan, the benefit payable to the covered employees
of T is not a "vacation benefit" and is not an eligible
"other benefit" described in section 501(c)(9) and
§1.501(c)(9)-3(d) or (e). [Reg. §1.501(c)(9)-3.]
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