Sponsors (4)
Allows employers and pension plan sponsors to move certain surplus retiree health or pension assets into other employee benefit uses under defined rules. One part permits excess retiree health assets to be transferred to pay active-employee benefits (including bolstering pension funding or, in limited cases, funding a VEBA) subject to limits and notices; the other part permits moving defined‑benefit pension surplus into a qualified replacement defined‑contribution plan if vesting, benefit‑protection, tax, and ERISA conditions are met. The bill changes tax and ERISA rules to treat transferred amounts as permitted distributions or plan assets when conditions are satisfied, requires notices to participants, sets limits and timing conditions, and adds protections against immediate benefit reductions and preserves vesting for transferred amounts. Exact effective dates are set in the text but are not detailed here.
Adds a new subsection 420(h) to the Internal Revenue Code authorizing transfers of excess health assets from a health benefits account under section 401(h) to fund active employee benefits. The transfer is not treated as causing the plan trust to fail section 401 requirements, is not included in employer gross income solely because of the transfer, and will not be treated as an employer reversion (section 4980) or as a prohibited transaction (section 4975). The limitations of paragraph (4) apply to the employer.
Defines “excess health assets” as the amount by which applicable assets for a retiree health plan exceed 125 percent of the employer’s total liability for benefits for all participants under the retiree health plan, determined in accordance with applicable accounting standards.
Specifies limitations on calculating excess health assets: exclude (i) contributions made after December 31, 2023 (except transfers under other subsections or contributions made under legally binding commitments entered into before January 1, 2024) and (ii) any liability reductions due to plan amendments adopted after December 31, 2023.
States that for terminating pension plans with a 401(h) health benefits account, all assets in that account are treated as excess health assets.
Defines “applicable assets” to include assets in a 401(h) health benefits account or assets held by a voluntary employees’ beneficiary association (VEBA) under section 501(c)(9).
Last progress June 10, 2025 (8 months ago)
Introduced on June 10, 2025 by Tim Scott
Who is affected and how:
Employers and plan sponsors: Gain new options to reallocate plan surpluses and retiree health excesses to fund active-employee benefits or to convert DB surplus into DC accounts. This increases plan design flexibility and may reduce ongoing retiree or DB liabilities if transfers are used.
Active employees and current plan participants: May receive increased or newly funded active-employee benefits as a result of transfers. For participants receiving transferred DB amounts into DC accounts, vesting rules apply and their retirement savings may be moved into individual accounts with different risk and benefit profiles.
Retirees and retiree health beneficiaries: Could be affected if retiree health plans are the source of transferred surplus; protections depend on the statutory definition of "excess" and the actuarial tests required before transfers are allowed. The law requires that only true excess assets be transferred and sets notice requirements, but some retiree advocates may still be concerned about future security of retiree benefits.
Pension plan participants (DB): Where surplus is shifted into DC replacement plans, accrued benefits are protected by vesting and non‑reduction rules for a set period; however, long‑term security of promised DB-style lifetime benefits may be altered when employers convert surplus to DC accounts.
Tax administration and federal revenue: The bill changes tax treatment of transferred amounts and makes related tax‑code amendments; this could affect timing and character of taxable events and have fiscal implications depending on how widely transfers are used.
Fiduciaries, plan administrators, and benefit service vendors: Will face additional compliance, notice, actuarial, and recordkeeping duties to implement transfers lawfully.
Overall effect: The legislation increases sponsor control over surplus assets while imposing procedural safeguards and tax/ERISA rules to limit misuse. It may encourage employers to resolve retiree health or pension surpluses by reallocating resources, with potential short‑term benefit improvements for employees but possible long‑term tradeoffs in retiree or DB benefit security depending on implementation and the stringency of the statutory tests and notice requirements.
Read twice and referred to the Committee on Finance.