VEBA Funding After General Signal and Parker-Hannifin: What Are the Rules?

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1 As Appeared in Benefits Law Journal Vol. II, No. 3, Autumn 1998 VEBA Funding After General Signal and Parker-Hannifin: What Are the Rules? By Russell E. Greenblatt, Katten Muchin Zavis Rosenman 1998 Aspen Law & Business. All rights reserved. V EBAs in general have become a common source of funding post-retirement welfare benefits. But the IRS has challenged one widely-used funding technique and has so far won both in the Tax Court and two courts of appeals. As a result, taxpayers were denied deductions for contributions made for post-retirement welfare benefits under Section 419A(c)(2). However, these arguments raised substantial questions as to exactly what is required to be entitled to a deduction under Section 419A(c)(2). Recently the Second Circuit an Sixth Circuit Courts of Appeals have affirmed the interpretation adopted by the Tax Court regarding the impropriety of one particular method of funding post-retirement welfare benefits. The same funding method was utilized by a third taxpayer, which similarly lost its Tax Court case regarding the deductibility of its contributions, and there is little reason to believe that the Seventh Circuit Court of Appeals will rule any differently than the Second or Sixth Circuits. Although these courts have been unanimous in their opinion as to what is not an acceptable method of deductible funding under Section 419A(c)(2) 1, none of them has provided much in the way of guidance with regard to what is acceptable. In fact, the suggestion from the Tax Court and the Second Circuit is that in order to be entitled to deductions for the advance funding of postretirement medical or life insurance benefits, a taxpayer must be prepared to comply with an ongoing minimum funding requirement. The IRS and Treasury have been silent, providing no guidance in the form of regulations, revenue rulings, or otherwise. The purpose of this article is to explain what guidance the current court cases do and do not provide and to explore what may be required in order for a taxpayer to utilize Section 419A(c)(2) for deductible advance funding of post-retirement medical and life insurance benefits. TYPICAL FACT PATTERN OF VEBA FUNDING From 1986 until approximately 1994 it was fairly common for employers that wished to take advantage of Section 419A(c)(2) to fund their welfare benefit fund, which was usually a VEBA, in the following manner. Typically, the company would make a large prefunded contribution near the end of its fiscal year in an amount that did not exceed the aggregate of its incurred but unpaid medical claims plus an actuarially determined amount computed with regard to its post-retirement medical (and perhaps life insurance) benefits. In some cases the yearend prefunding also took into account other welfare benefits funded through the Trust, such as long-term disability benefits. Thereafter, the assets in the Trust were considered fungible and were spent as claims were presented Russell E. Greenblatt is a partner in the Chicago office of the law firm Katten Muchin Zavis Rosenman and a member of the Editorial Advisory Board of Benefits Law Journal. Also, Mr. Greenblatt represented General Signal Corporation in Tax Court with respect to the subject matter discussed herein.

2 for payment to the Trustee. As a result, the funds were depleted to pay benefits (and related expenses, insurance premiums, HMO payments, and so on) without regard to whether they pertained to active employees versus retirees. If the funds were entirely depleted prior to year end, an additional contribution(s) would be made to cover the remaining claims until year end, at which time another year-end contribution was typically made. The contribution made at the end of year two was similar to the one made the preceding year, determined with regard to the incurred but unpaid medical claims plus actuarially determined post-retirement medical (and perhaps life insurance) benefit liability existing at that time. This process may then have been repeated for additional subsequent years, though generally the process of prefunding the VEBA was terminated at some point and the VEBA maintained on a pay-as-you-go basis thereafter. The Tax Court has rendered opinions in three cases that involved this basic fact pattern. General Signal Corporation was fairly typical in that substantial year-end contributions were made for four succeeding years and the funding was changed to pay-as-you-go thereafter. Similarly, Square D Company made substantial year-end contributions for three years and then failed to replenish its year-end reserve and switched to pay-as-you-go thereafter. Somewhat unlike the other two companies, Parker-Hannifin Corporation only made one substantial year-end contribution, which was depleted within 14 months and the trust was switched to pay-as-you-go thereafter. ANALYSIS OF THE TAX COURT In all three of the cases, the Tax Court concluded that the taxpayer was not entitled to a deduction for that portion of the contribution determined by reference to Section 419A(c)(2). In all three cases the Tax Court concluded that the taxpayer had failed to establish a reserve in accordance with what the Tax Court perceived to be the requirements of Section 419A(c)(2). General Signal Corporation and Subsidiaries v. Commissioner, 103 T.C. 216 (1994) the Tax Court held that in order to be entitled to a deduction, the taxpayer must have intended to accumulate funds for the particular purpose of providing post-retirement medical or life insurance benefits. According to the Tax Court: On its face, the language reserve funded suggests that Congress intended this provision to allow the accumulation of funds by a welfare benefit fund for the purpose of providing postretirement benefits. (Emphasis in original.) In other words, the statute does not merely set forth the manner of calculating the limit for the reserve under Section 419A(c)(2), but instead requires that the taxpayer had a certain intent to accumulate funds. Parker-Hannifin Corporation v. Commissioner, 72 T.C.M. 191 (1996) Similar to its prior decision, the Tax Court concluded that because the contribution was not intended to be set aside to accumulate a reserve for postretirement benefits, the taxpayer was not entitled to a deduction. The Tax Court rejected the taxpayer s argument that the requirement to set aside assets and accumulate them for this specific purpose could not be inferred from the face of the statute and that the IRS had failed to provide any hint that such a requirement existed. Square D Company and Subsidiaries v. Commissioner, 109 T.C. No. 9 (1997) In this case, the Tax Court similarly concluded that the taxpayer had failed to establish a reserve and therefore was not entitled to the deduction. In this case even more so than in the prior two, the Tax Court appeared to place significant emphasis upon the fact that the taxpayer had not disclosed to its employees or shareholders the existence of a claim to reserve. According to the Tax Court, even though such disclosure is not required under any law (including Section 419A(c)(2)), the failure to make such disclosure suggests that a reserve was not established. At least one additional case PepsiCo., Inc. and Affiliates v. Commissioner, Tax Court Docket No has reached Tax Court with regard to the question of entitlement to a reserve for post-retirement benefits, though it appears to have been settled between the parties in Tax Court without a reported decision on the matter. BASIS FOR APPEALS The decisions in General Signal and Parker-Hannifin have already been affirmed by the courts of appeal. Taxpayers made two principal arguments when they appealed the decisions of the Tax Court. The first basis for appeal was the language and structure of Sections 419 and 419A. In essence, the Tax Court concluded that the phrase reserve funded meant quite literally that a type of reserve had to be established and funded with the 2

3 intention that assets be accumulated for the limited purpose of providing post-retirement benefits. The petitioners argued that it was inappropriate to focus on the phrase reserve funded without putting those two words into context. The argument was that the phrase reserve funded has no relevance or meaning of its own other than to modify the lead-in language, which is that: [t]he account limit for any taxable year may include.... (Emphasis added.) Related to this argument is that to require the accumulation of assets for the specific purpose of providing post-retirement benefits appears to be inconsistent with the language and purpose of the related Section 419A regarding qualified asset accounts to which the account limit was to apply. Instead, Section 419A(a) 2 addresses the setting aside of assets in such an account in a manner which suggests that the assets are to be used fungibly (rather than being required to be used for a singular purpose). Had Congress intended to limit the use of contributions with respect to one particular component of the welfare benefit fund s account limit, Congress would not have so clearly implied fungibility of assets in Section 419A(a), and would have instead employed the set aside language in Section 419A(c)(2). Basically, the petitioners were arguing that when read in context, Section 419A(c)(2) was merely setting forth the manner in which this one component of the account limit was to be actuarially determined. A second major argument upon appeal was that when Congress wanted to require the accumulation of funds and limit the use of those funds to the specific purpose of providing post-retirement benefits, it clearly knew how to do so. Two examples cited are Section 419A(d) and Section 401(h). Section 419A(d) provides that as of the first taxable year for which a reserve is taken into account under Section 419A(c)(2), and if that reserve includes post-retirement benefits to key employees, then: (A) a separate account shall be established for any medical benefits or life insurance benefits provided with respect to such employee after retirement, and (B) medical benefits and life insurance benefits provided with respect to such employee after retirement may only be paid from such separate account. (Emphasis added.) Presumably if Congress had intended to mandate the establishment of a separate account to monitor or regulate the handling of reserves for post-retirement benefits under Section 419A(c)(2), it would not have limited separate accounting requirements under Section 419A(d) to apply only with respect to retiree reserves attributable to key employees. Section 401(h) is another example of clear congressional intent to mandate the dedication of amounts contributed to a trust to be used solely for post-retirement medical benefits. Section 401(h) authorizes the providing of post-retirement medical benefits from a qualified pension plan but only if a separate account is established and maintained for such benefits and that it is impossible, at any time prior to the satisfaction of all liabilities under the plan to provide such benefits, for any part of the corpus or become of such separate account to be (within the taxable year or thereafter) used for, or diverted to, any purpose other than the providing of such benefits. Taxpayers lost on these arguments in both circuits. DECISIONS OF THE APPEALS COURTS Parker-Hannifin (6th Cir. 1998) The Sixth Circuit Court of Appeals determined, based upon the language of the statute and legislative history, that a deduction under Section 419A(c)(2) is permitted only when the employer accumulates assets in order to provide post-retirement benefits. According to the court, the deductibility of contributions under Section 419A(c)(2) is a narrow exception to Congress s intent to prevent employers from taking premature deductions for expenses which have not yet been incurred and that the exception is only available if assets are accumulated in a reserve so long as the reserve is funded over the working lives of the covered employees and is actuarially determined on a level basis... as necessary for the provision of post-retirement medical and life insurance benefits to its employees. 3

4 The court determined that it is not necessary that the fund maintain separate accounts for post-retirement benefits. Rather, what is necessary is that the company maintain a balance in the trust sufficient to support the post-retirement benefits for which it takes a deduction. Unfortunately, the Sixth Circuit went further with an ominous requirement. It stated that Section 419A(c)(2) establishes what the court referred to as a quid pro quo. Quoting from legislative history, the court stated that in order to secure a deduction, employers must accumulate assets in a reserve so that the medical benefit or life insurance (including death benefit) payable to a retired employee during retirement is fully funded upon retirement. The court did not go further to explain the details of this requirement. However, the clear signal appears to be that the liability must be fully funded upon retirement, or at least that it is the employer s current intention to have it fully funded. It therefore appears to be the Sixth Circuit s position, at least in dicta, that an employer is not permitted a deduction under Section 419A(c)(2) if it intends only to fund a portion of the postretirement liability irrespective of the fact that this portion is to be funded on a level basis and the assets are to be set aside for the sole purpose of providing post-retirement benefits. General Signal (2d Cir. 1998) The Second Circuit found that the language of Section 419A(c)(2) clearly evokes gradual accumulation of funds measured with an eye towards complete funding at the time of retirement. According to the court, this is not necessarily the gradual accumulation of funds with complete funding at retirement, but rather the intention on the part of the taxpayer that such funding take place. As stated by the Second Circuit: [w]hether deductions may be claimed under section 419A(c)(2)... properly turns on the intent of General Signal in establishing its reserve.... The intent of General Signal at the time of the contribution is the relevant determination.... While our reading of the statute does imply a commitment to establish funding through the working lives of covered employees, if subsequent events rendered maintenance of the reserve impossible, evidence of the reason for discontinuing or spending down the reserve could be presented in response to any accusation that a taxpayer never intended a reserve to be established in the first place. The taxpayer argued that reading an intent test into Section 419A(c)(2) would create administrative problems. The court acknowledged that General Signal presented strong arguments that the Tax Court s ruling would be unworkable in practice. It nonetheless found that congressional intent required this conclusion irrespective of such problems. The court pointed out that such administrative problems may be the result of the Treasury Department s failure to promulgate rules respecting administration of reserves funded under Section 419A(c)(2). The court stated that nonetheless it would not read the statute in a manner contrary to Congress s intent in order to accommodate the agency s failure to promulgate rules that would make the intended requirements easier to administer. IS THERE A MINIMUM OR LEVEL FUNDING REQUIREMENT? The Tax Court, in General Signal, acknowledged the fact that its interpretation of the statute would result in related requirements which, to my knowledge, have been considered by hardly anyone in the benefits community. As stated by the Tax Court: We recognize that the interpretation of section 419A(c)(2) which we are adopting may leave open related issues such as the rate of required funding and the consequences of diversion of a reserve. However, such uncertainties cannot justify ignoring the plain meaning and legislative history of section 419A(c)(2).... To the extent our interpretation of section 419A(c)(2) leaves open related issues the resolution of which are not required by this case, we can only hope that Congress or the Treasury will provide additional guidance. The Second Circuit appears to have not only embraced the interpretation that such an accumulation is necessary, but also has taken it a step further by requiring the taxpayer to have an intent to commit itself to fund gradually through the working lives of covered employees with an eye toward complete funding at the time of retirement. Such an interpretation would appear to be contrary to the language of this statute, which couches the reserve in terms of a limit on the qualified asset account. In other words, what appears to have originally been a 4

5 limitation on the maximum amount of funding of a reserve, has perhaps instead been transformed into a provision which requires the taxpayer to intend to ratably fund the liability in its totality as a precondition to a deduction for any portion of the reserve. And what is the relevance of the word level in the statute? The logical implication from the Tax Court and Second Circuit is that it is the payment of contributions, rather than the liability accrual for purposes of calculating the account limit, which must be done on a level basis. If the word level refers to the required funding rather than an actuarially determined measurement of liability with regard to an account limit, what are the ramifications if contributions or asset accumulations are not level from year-to-year? For example, what if in the first year in which a reserve is established, the taxpayer only funded 50 percent of the maximum reserve contribution in that year, then contributed nothing in the second year and 20 percent in the third year. Such an accumulation could hardly be considered level. It appears that the Second Circuit would not recognize the deductibility of even the 50-percent contribution in the first year (let alone the 20- percent contribution in year three) unless the taxpayer could demonstrate that it had originally intended the gradual accumulation of such a reserve, on a level basis, and that it was only subsequent events which precluded it from maintaining the intended schedule. In this regard it should be noted that the Tax Court has pointed out that although in its brief in General Signal the IRS denied that minimum annual funding would be required under the Commissioner s interpretation of Section 419A(c)(2), the Commissioner nonetheless fails to explain the basis for her position. In addition, this unstated position might evolve further (or change) in light of the significant support provide by the Second Circuit. At this juncture, the only safe approach would appear to be for a taxpayer not to embark on the funding of a post-retirement reserve under Section 419A(c)(2) unless it is willing to commit to the gradual accumulation of funds with an eye toward the complete funding of the liability. In addition, care should be taken to assure that this intent is well documented in the governing documentation and that the actuarial certification supporting the contributions does not contain language to the contrary. However, plan sponsors and trustees are urged to consider the fiduciary implications under ERISA of making such open-ended promises. As a result, caveats should be incorporated into the governing trust documentation (and related corporate authorizations) that would allow such funding promises to be altered or terminated if such changes are necessitated by a change of circumstances and permitted by applicable law. WHAT IF A RESERVE IS SUBSEQUENTLY DIVERTED? In General Signal, the Tax Court implied that there may be a tax penalty for the diversion of assets from a reserve accumulated under Section 419A(c)(2). Neither the Tax Court nor the Second Circuit provided any guidance as to what constitutes a diversion or what the ramifications may be. If a single dollar is diverted and used, intentionally or not, for a benefit other than post-retirement benefits, is the whole reserve tainted? To what extent is the prior deduction in jeopardy? Does the diversion constitute a disqualified benefit under Section 4976(b)(1)(C)? Although no court has addressed the subject, employers funding such a reserve need to take this potentiality into account. For example, what if an employer discontinues the funding of a reserve under Section 419A(c)(2) and perhaps chooses to use some of the accumulated funds to pay the claims of active employees? The regulations under Section 501(c)(9) appear to comprehend that the assets of the trust (presuming it to be a VEBA) are fungible. Similarly, the vast majority of trust documents appear to comprehend fungibility. What are the contributing employer and trustee to do if insufficient funds are available to continue the reserve accumulations, let alone to continue the luxury of maintaining the reserves already accumulated within the trust? The current state of the law appears to force fiduciaries with insufficient trust asset accumulation to choose between (1) segregating trust assets into accounts for different types of benefits or beneficiaries, or (2) paying all types of benefits permitted under the trust agreement as the claims are presented and thereby jeopardizing (on a retroactive basis) the deductibility of the previous contributions. With regard to this requirement to maintain an accumulation and the related penalty for a diversion of the reserve, the Tax Court endorsed the IRS s unexplained suggestion that Section 419A(c)(2) might be read to require 5

6 the creation of a reserve funded with general assets rather than segregated assets. Under this view, according to the Tax Court, the statute requires only that the overall balance maintained in the VEBA be sufficient to support the post-retirement reserve and not that a separate account be established with respect to the reserve. However, calling a reserve general rather than specific does not provide much guidance. If funds have to be accumulated and maintained to provide retiree benefits, those accumulated funds would appear to cease being fungible irrespective of whether they are treated as general or segregated. According to the Second Circuit, there is no reason that if a taxpayer elects to claim deductions under Section 419A(c)(2), it cannot provide as part of the trust agreement that its contributions to such reserve are to be set aside for retiree beneficiaries. It would appear that such an approach is the only safe one. What can or should be done if the sponsor has previously attempted to establish a reserve under Section 419A(c)(2), but may not have complied with the requirements recently imposed or suggested by the courts? Can the sponsor effectively segregate a portion or all the trust assets that were previously deducted under Section 419A(c)(2)? While this would appear to be a prudent step to take, it may be in vain if, as the Second Circuit suggests, the relevant determination is what was the taxpayer s intent at the time the contribution was made. HOW IS THE SIZE OF RESERVE TO BE COMPUTED? In the absence of any express statutory, regulatory, or actuarial guidance to the contrary, it appears that actuaries should have discretion to determine the actuarial cost method to be employed in each particular case. Section 419A(c)(2) does not appear to authorize or prohibit the use of any particular actuarial cost methods. Rather, all that appears to be required is that the reserve be determined on a level basis and over the working lives of the covered employees. The only gloss which the Conference Committee Report appears to add is that the reserve may be accumulated no more rapidly than on a level basis over the working life of the employee so that the benefit payable to a retiree is fully funded upon retirement. The Projected Unit Credit method (PUC) is a commonly used method, perhaps because it is the method that frequently produces the largest reserve. Furthermore, it is so commonly used in pension plan certifications that the Financial Accounting Standards Board requires its use under both Statement of Financial Accounting Standards No. 87 ( Employers Accounting for Pensions ) and No. 106 ( Employers Accounting for Postretirement Benefits Other Than Pensions ). One reason why PUC may be so attractive in the case of certifications under Section 419A(c)(2) is that under PUC a reserve component is calculated with respect to each participant and then all of the components are aggregated to determine the reserve for the entire group. Therefore, the projected remaining liability with respect to each individual is recognized over that individual s remaining working lifetime. Consequently, the reserve determination under PUC recognizes liability for each retiree in its totality as of the time the reserve is established. It should be noted however that PUC is not a level method because the allocation of annual normal costs increases over time under PUC. Therefore, the annual allocations are smaller in early years than under a level method but greater in later years. However, the reserve level under PUC begins and ends at the same point as it would under a level method and is never in any year greater under PUC. As a result, it would appear that PUC would be a permissible method unless it is determined that the law requires that a level method must be used. Instead, it appears that the statute merely provides that the limit on the reserve is that amount which would be derived from a level method and that therefore any method which produces a lesser reserve would be acceptable. Unfortunately there is no authoritative guidance with respect to this point. Since all of the cases decided to date with respect to Section 419A(c)(2) have concluded that no reserve was properly established, none of the courts have had to address the question of whether the actuarial cost method in question was permissible. In addition, the Treasury Department has not provided any formal guidance and the IRS has not issued any revenue rulings with respect to this question. Several private letter rulings issued with regard to a particular cost method approved by the IRS under the facts of those particular cases have blessed the method, which recognizes the liability for retirees over the remaining working years of the active employees. 3 6

7 WHAT IS THE PROPER METHOD OF ACCOUNTING FOR RETIREES? Upon audit, the IRS has historically raised the argument that the reserve cannot take into account individuals who have already retired because they no longer have any working lives over which to fund the reserve. 4 However, if challenged the IRS readily concedes the inappropriateness of this position and in fact has acknowledged on numerous occasions that the liability with respect to retirees may be taken into account. 5 If it is permissible to take into account the liability with respect to individuals who have already retired, may such liability be recognized immediately or must it be amortized, and if so over what period of time? The IRS is of the opinion that the liability for individuals already retired must be amortized over the remaining working lifetime of the active employees. 6 However, it appears that treating the retirees as employees, but ignoring the fact that these individuals have zero remaining working years when determining the average remaining working lifetime for the covered group, appears to be inconsistent. In other words, if the statutory basis for deducting the liability with respect to them is to treat them as employees, what is the basis for ignoring the fact that these employees have zero remaining working years? And, if it is impermissible to recognize their liability immediately, is that not tantamount to saying that PUC is not an acceptable funding method under Section 419A(c)(2)? Furthermore, it would appear illogical to permit funding of almost the entire liability with respect to an employee who has only one year left to retirement while at the same time taking the position that the funding of a person who has already retired must be deferred over the average remaining working career of the entire workforce. WHAT TYPE OF ACTUARIAL CERTIFICATION IS REQUIRED? Presuming a company wishes to accumulate a reserve for postretirement benefits, how is the account limit to be computed with respect to such reserves? Section 419A(c)(5) requires an actuarial certification of the account limit. Note that this certification requirement is not limited to the post-retirement benefit reserve, but rather refers to the account limit of presumably the entire qualified asset account under Section 419A(a) and therefore would appear to necessarily embrace all of the component parts of the account limit (such as incurred but unpaid medical claims, long-term disability liability, and any other benefits funded through the fund). The requirement of a singular certification of all components of the account limit appears to be an unnecessary burden and would not appear to serve any purpose. Instead, perhaps it is sufficient to secure a certification of solely the post-retirement welfare benefit reserve. In General Signal, Parker-Hannifin, and Square D the IRS did not argue that a singular certification of the entire account limit was necessary, and therefore did not challenge the deduction on that basis. Nonetheless, the issue exists and could perhaps be raised in a future case. I do not recall ever having seen or heard of a singular certification of a multiple component account limit. Hopefully the IRS would concede that such a practice is unheard of in the benefits community and would not attempt to impose such a requirement. GUIDANCE REQUESTED It has been 14 years since the enactment of Section 419A(c)(2), yet there has been no guidance provided from the Treasury Department or the IRS in the form of regulations, revenue rulings, or otherwise. While we know what position the IRS has taken in litigation with respect to what does not constitute the establishment of a reserve under Section 419A(c)(2), there are many unanswered questions. Hopefully, the agency will provide guidance with respect to some of them. Five areas that appear to be ripe for guidance are: 1. What is required in order to sufficiently establish a reserve under Section 419A(c)(2)? What does it mean to have a reserve funded with general assets rather than segregated assets, if the contributions made with regard to the retiree benefits cannot be used to pay the claims of active employees? 2. What is the intention that a taxpayer must have at the time it establishes a reserve in order to be entitled to a deduction under Section 419A(c)(2)? In other words, what accumulation must it be intending, and does this intent apply merely with respect to the contribution that is being made 7

8 that year or must the taxpayer have an intention at that time with respect to future contributions? Although the Commissioner s stated position in Tax Court was that there is no minimum annual funding requirement under the Commissioner s interpretation of Section 419A(c)(2), has this interpretation changed in light of the Second Circuit s apparent belief that there is a minimum or level funding requirement? 3. What are the requirements for an actuarial certification under Section 419A(c)(5)? Is it necessary for there to be a single certification of the entire account limit under Section 419A(c)? Alternatively, will it be permissible for the certification to pertain only to the post-retirement benefit reserve under Section 419A(c)(2), thereby permitting the taxpayer to either utilize the safe harbors under Section 419A(c)(5) with respect to other benefits funded through the trust or to get separate certifications for each of the component parts of the account limit? 4. What actuarial funding method(s) will be acceptable under Section 419A(c)(5) with respect to postretirement benefit reserves? More specifically, is it acceptable to use actuarial cost methods (such as Projected Unit Credit) that determine reserves at a rate less than those that would be determined under a level method? 5. What is the effect of a diversion of a reserve once it has been established? Presuming the taxpayer had the requisite intention (whatever that might be) at the time the reserve was established, what will be the effect if circumstances change and additional accumulations are not made and perhaps the existing assets are depleted for other purposes? Does this retroactively affect the prior deductions under Section 19A(c)(2) or are there excise tax ramifications under Section 4976? NOTES 1. Section 419(A)(c)(2) provides: Additional reserve for post-retirement medical and life insurance benefits. The account limit for any taxable year may include a reserve funded over the working lives of the covered employees and actuarially determined on a level basis (using assumptions that are reasonable in the aggregate) as necessary for (A) postretirement medical benefits to be provided to covered employees (determined on the basis of current medical costs), or (B) post-retirement life insurance benefits to be provided to covered employees. 2. Section 419(A)(a) provides: [T]he term qualified asset account means any account consisting of assets set aside to provide for the payment of (1) disability benefits, (2) medical benefits, (3) SUB [supplemental unemployment benefits] or severance pay benefits, or (4) life insurance benefits. (Emphasis added.) 3. Private Letter Rulings , See, e.g., 1992 Exempt Organizations Division Continuing Professional Education Technical Instruction Program, at p Private Letter Rulings , IRS VEBA Focus Training (June 1992) 22, West Monroe Street Suite 1600 Chicago, IL Tel Fax Madison Avenue New York, NY Tel Fax Century Park East Suite 2600 Los Angeles, CA Tel Fax Thomas Jefferson St., N.W. East Lobby, Suite 700 Washington, DC Tel Fax South Tryon Street Suite 2600 Charlotte, NC Tel Fax Sheridan Avenue Suite 450 Palo Alto, CA Tel Fax One Gateway Center Suite 2600 Newark, NJ Tel Fax /24/2002