August 6, 2015

IRC §420 Transfers of Excess Pension Assets Extended to 2025

On July 31, 2015, President Obama signed into law a four-year extension, from 2021 to 2025, of Section 420 of the Internal Revenue Code (IRC). Generally, §420 allows sponsors of defined benefit plans with excess assets to transfer part of the excess amount to an account to pay retiree health benefits or retiree group term life insurance premiums. The extension of §420 was included along with other revenue-raising measures in the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (Surface Transportation Act), which provided an additional three-month authorization of the Highway Trust Fund.

The four-year extension of §420 is expected to raise $172 million in revenue towards the $8 billion cost of the Surface Transportation Act. This is the second time further authorization of the Highway Trust Fund has been tied to an extension of §420, and the third time further authorization of the Highway Trust Fund has been tied to pension revenue-raisers. In 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21) extended §420 from 2013 to 2021, while also making other pension revenue-raising changes. (The Highway and Transportation Funding Act of 2014 also included pension revenue-raisers, although none dealt with §420.) In none of the instances, was there any direct connection between §420 (or other pension changes) and the Highway Trust Fund.

If you have any questions about the extension, please contact your Sibson consultant or send us a note.

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