House approves surplus pension asset transfer billReprints
Legislation overwhelmingly approved by the House of Representatives Wednesday 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.
A transportation funding bill, H.R. 3038, approved by the House on a 312-119 vote, 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.
The congressional Joint Committee on Taxation estimated, in a report released Wednesday, that the Section 420 extension provision would raise $172 million in federal revenues from 2022 through 2025.
That revenue would be the result of smaller tax-deductible employer expenses to pay for retiree health care expenses since part of that tab would be paid for through the pension assets shifted into Section 420 accounts.
The Senate soon is expected to draw up its own transportation funding measure.