Never heard of a benefit plan called the Voluntary Employees' Beneficiary Association (VEBA) trust? You will eventually. "There are a lot of people out there promoting them to affluent small-business owners," says Byron Moore, president of Argent Advisors, a financial planning firm in Ruston, Louisiana.
A VEBA is a welfare benefit trust that allows you to set aside tax-deductible money for employee health, disability or life insurance. "VEBAs are nothing more than a funding vehicle for certain types of benefits," says Diane Fuchs, a tax attorney with the Washington, DC, office of Womble Carlyle Sandridge & Rice PLLC. Regular contributions by employers and/or employees can be made to a certain level tax-free, and the business can take an immediate deduction for the entire premium.
Sounds good, but buyer beware: The IRS penalizes business owners using VEBAs as deferred or supplemental pension plans. You can incur significant tax penalties if you're not careful. VEBAs aren't cheap, either. Setup could cost more than $10,000, and the minimum initial contribution runs $100,000, Moore says.
Also ponder the rate of return 20 years down the line and
whether you can sustain the plan. Says David Silverman, New York
City tax advisor and co-author of the latest edition of Taxes for Dummies (Hungry Minds), "If
you suspend the payments to the VEBA and have to surrender the
policy, you can take a monumental hit."
Some expected Silicon Valley's signature bank to crash along with the dotcoms it finances. But Silicon Valley Bank CEO Kenneth Wilcox says low exposure has kept them safe-and growth is in the offing.
of U.S. executives predict the economy will slow further before
SOURCE: Management Association
Early-stage, venture-backed tech and life sciences companies make up about 70 to 80 percent of your portfolio. How are you faring in the dotcom meltdown?
Kenneth Wilcox: Our investing model is based on the idea that if a company has intellectual property, you've got a backstop, and there's a very good source of repayment there. We've financed a number of infrastructure and backbone companies, which tend to have intellectual property, but the e-commerce companies don't usually, so we've tried to stay away from them for the most part.
How about defaults?
Wilcox: No, we haven't seen an increase in the number of payment defaults, but we have seen a marked increase in the number of companies that are not meeting their projections. In the end, we're still getting paid, but companies are having a lot harder time meeting their projections.
What changes have you made to deal with the tech-sector failures?
Wilcox: We watch things much more closely now. Instead of looking at a company every six or eight weeks, we may look at its progress every three or four weeks. But our modus operandi has always been that we support companies that are supported by investors. In that way, we haven't changed at all.
How bad will this get?
Wilcox: Some venture
capitalists [are looking at this quarter or the next] as the time
when they will have taken care of all the stray cats and dogs in
their portfolios and be more able to go after new
Chris Pentilla is a freelance journalist in Carrboro, North Carolina. Her Web site is www.sitting-duck.com.
- Argent Advisors, 500 E. Reynolds Dr., Ruston, LA 71270