Given these circumstances, why do you think the employer is responsible for anything?  Aren't they just following the requirements of a presumably valid VEBA covering a certain set of their employees?  It is not like the employer set this up for the employees.  It was in effect legally foisted upon the employer to withhold according to the terms of the VEBA. 

As for the Medicare tax, there is no doubt that my client would have paid the employee share of Medicare if the VEBA did not exist.  Does he have to pay it now?  Maybe, maybe not.  But trying to stick it back on the employer in a situation like this makes no sense, and quite frankly, is downright stupid so long as the employee is still employed there.