Sponsors of overfunded defined benefit plans will be able to use excess assets for retiree health care and life insurance, under a highway bill passed by the House late Wednesday. The Senate is expected to take up the proposal this week before the highway trust fund runs out of money Aug. 1.
Internal Revenue Code Section 420(b) allows defined benefit plans whose assets are at least 125% of their funding target to transfer some assets, once per year, to a retiree medical account for the same group of participants. Section 420 was set to expire after 2021 but will be extended through 2025 if the House and Senate agree on a final highway bill.
Section 420 was enacted in 1990 when more pension plans were overfunded. While fewer plans might be in that position today, “they may be able to use it at some point. It’s a great opportunity to make sure that retiree health is paid for,” said Diann Howland, vice president for legislative affairs with the American Benefits Council in Washington.