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Retiree health funding bill introduced

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Legislation introduced in the House of Representatives Monday by the chairman of the House Ways and Means Committee would extend by four years a federal law that allows employers to remove surplus assets from overfunded pension plans to pay for retiree health care benefits.

Under Section 420 of that 1990 law, an employer can transfer surplus pension plan assets to special retiree health care accounts. Such transfers are allowed as long as several conditions are met: the pension plan remains at least 125% funded; plan participants’ accrued benefits are immediately and fully vested; and employers, through a “maintenance of cost” requirement, do not reduce their expenditures for retiree health care coverage for five years after the transfer occurs. Failure to meet those conditions after a transfer results in substantial penalties.

The legislation, H.R. 3038, introduced by Rep. Paul Ryan, R-Wisconsin, would extend Section 420’s scheduled expiration date from the end of 2021 to year-end 2025.

It isn’t known how many employers currently utilize Section 420 transfers. But more than a decade ago, experts estimated that roughly 50 to 100 employers a year used Section 420 transfers.

Employer groups back the extension, which is part of a broader federal highway funding bill.

“We urge the House to pass the highway bill with this important protection for employee benefits,” Annette Guarisco Fildes, president and CEO of the Washington-based ERISA Industry Committee said in a statement Wednesday.

The benefits lobbying group said the ability of employers to use surplus pension assets “to pay for important retiree benefits is crucial to” the funding of the benefits.