1.501(c)(9)-4. Voluntary employees' beneficiary
associations; inurement
(a) General rule. --No part of the net earnings of an employees'
association may inure to the benefit of any private shareholder
or individual other than through the payment of benefits permitted
by §1.501(c)(9)-3. The disposition of property to, or the
performance of services for, a person for less than the greater
of fair market value or cost (including indirect costs) to the
association, other than as a life, sick, accident or other permissible
benefit, constitutes prohibited inurement. Generally, the payment
of unreasonable compensation to the trustees or employees of
the association, or the purchase of insurance or services for
amounts in excess of their fair market value from a company
in which one or more of the association's trustees, officers
or fiduciaries has an interest, will constitute prohibited inurement.
Whether prohibited inurement has occurred is a question to be
determined with regard to all of the facts and circumstances,
taking into account the guidelines set forth in this section.
The guidelines and examples contained in this section are not
an exhaustive list of the activities that may constitute prohibited
inurement, or the persons to whom the association's earnings
could impermissibly inure. See §1.501(a)-1(c).
(b) Disproportionate benefits. --For purposes
of subsection (a), the payment to any member of disproportionate
benefits, where such payment is not pursuant to objective and
nondiscriminatory standards, will not be considered a benefit
within the meaning of §1.501(c)(9)-3 even though the benefit
otherwise is one of the type permitted by that section. For
example, the payment to highly compensated personnel of benefits
that are disproportionate in relation to benefits received by
other members of the association will constitute prohibited
inurement. Also, the payment to similarly situated employees
of benefits that differ in kind or amount will constitute prohibited
inurement unless the difference can be justified on the basis
of objective and reasonable standards adopted by the association
or on the basis of standards adopted pursuant to the terms of
a collective bargaining agreement. In general, benefits paid
pursuant to standards or subject to conditions that do not provide
for disproportionate benefits to officers, shareholders, or
highly compensated employees will not be considered disproportionate.
See §1.501(c)(9)-2(a)(2) and (3).
(c) Rebates. --The rebate of excess insurance
premiums, based on the mortality or morbidity experience of
the insurer to which the premiums were paid, to the person or
persons whose contributions were applied to such premiums, does
not constitute prohibited inurement. A voluntary employees'
beneficiary association may also make administrative adjustments
strictly incidental to the provision of benefits to its members.
(d) Termination of plan or dissolution of association.
--It will not constitute prohibited inurement if, on termination
of a plan established by an employer and funded through an association
described in section 501(c)(9), any assets remaining in the
association, after satisfaction of all liabilities to existing
beneficiaries of the plan, are applied to provide, either directly
or through the purchase of insurance, life, sick, accident or
other benefits within the meaning of §1.501(c)(9)-3 pursuant
to criteria that do not provide for disproportionate benefits
to officers, shareholders, or highly compensated employees of
the employer. See §1.501(c)(9)-2(a)(2). Similarly, a distribution
to members upon the dissolution of the association will not
constitute prohibited inurement if the amount distributed to
members are [is] determined pursuant to the terms of a collective
bargaining agreement or on the basis of objective and reasonable
standards which do not result in either unequal payments to
similarly situated members or in disproportionate payments to
officers, shareholders, or highly compensated employees of an
employer contributing to or otherwise funding the employees'
association. Except as otherwise provided in the first sentence
of this paragraph, if the association's corporate charter, articles
of association, trust instrument, or other written instrument
by which the association was created, as amended from time to
time, provides that on dissolution its assets will be distributed
to its members' contributing employers, or if in the absence
of such provision the law of the state in which the association
was created provides for such distribution to the contributing
employers, the association is not described in section 501(c)(9).
(e) Example. --The provisions of this section
may be illustrated by the following example:
Example. Employees A, B and C, members of the
X voluntary employees' beneficiary association, are unemployed.
They receive unemployment benefits from X. Those to A include
an amount in addition to those provided to B and C, to provide
for A's retraining. B has been found pursuant to objective and
reasonable standards not to qualify for the retraining program.
C, although eligible for retraining benefits has declined. X's
additional payment to A for retraining does not constitute prohibited
inurement. [Reg. §1.501(c)(9)-4.]
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