Strengthening Benefit Plans Act of 2025

Bill Number

S. 2003

Origin Chamber

Senate

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-06-10: Read twice and referred to the Committee on Finance.

Last Updated

2025-06-30T17:56:45Z

AI-Generated Summary

Purpose of the Legislation

The Strengthening Benefit Plans Act of 2025 aims to provide employers with greater flexibility in managing pension and health benefit plans by allowing the transfer of excess or surplus assets from retiree-focused accounts to fund benefits for active (current) employees. This is intended to support ongoing employee benefits without triggering tax penalties or violating retirement laws, while ensuring protections for retirees.

Key Provisions

• Title I: Transfer of Excess Health Assets for Funding Active Employee Benefits
• Permits the transfer of "excess health assets" from a health benefits account (set up under IRC Section 401(h) for retiree health coverage) to either the main pension plan or a voluntary employees' beneficiary association (VEBA, a tax-exempt group set up for employee benefits under IRC Section 501(c)(9)).
• Excess health assets are defined as assets in the retiree health plan exceeding 125% of the employer's liability for retiree benefits, calculated using standard accounting rules. Excludes recent contributions (after December 31, 2023) or benefit reductions after that date. For terminating plans, all health account assets qualify as excess.
• Transfers can occur once per taxable year in the fiscal year following the determination of excess, must meet use, vesting (nonforfeitable rights), and minimum cost/benefit rules, and cannot violate other laws.
• Transferred funds must primarily fund pension benefits for active employees; transfers to a VEBA are limited (e.g., only if adding to the pension would create or increase a "funding excess" over 110% of liabilities).
• No tax on the transfer for the employer; no deduction allowed for the transfer or related benefits. Over five years post-transfer, employer costs cannot drop materially below recent levels, or benefits cannot be reduced.
• Requires 60-day advance notice to affected participants and beneficiaries, including transfer details and vesting information.
• Effective for taxable years beginning after December 31, 2024.

• Title II: Transfer of Surplus Defined Benefit Plan Assets to Defined Contribution Plan
• Allows surplus assets from a defined benefit plan (a traditional pension promising fixed benefits) to be transferred to a defined contribution plan (like a 401(k), where benefits depend on contributions and investments), if the DC plan qualifies as a "replacement plan."
• Surplus assets are assets exceeding 110% of the plan's liabilities (used for calculating insurance premiums under ERISA Title IV).
• Transfers must fully vest (make nonforfeitable) all defined benefit plan benefits as if the plan were terminating, and no benefits in the replacement DC plan can be reduced for four years after the last transfer-funded year.
• No tax on the transfer for the employer; no deduction allowed, and it is not treated as an improper reversion of funds.
• Requires similar advance notice as in Title I.
• Effective for plan years beginning after December 31, 2025.

• General Amendments
• Updates to the Internal Revenue Code (Sections 401, 420, 430, 433) and Employee Retirement Income Security Act (ERISA, the federal law governing private pensions) to ensure transfers are not treated as prohibited transactions, employer reversions, or failures to meet plan requirements.
• Coordinates with existing rules on funding, deductions, and asset treatment.

Significant Changes to Existing Law

• Previously, excess assets in retiree health accounts (under IRC Section 420) could only be transferred for limited purposes, often tied to retiree benefits or plan terminations, with strict tax and ERISA restrictions. This bill expands transfers to explicitly support active employee benefits, treating them as qualified and exempt from penalties.
• Introduces new definitions (e.g., excess health assets, surplus assets) and thresholds (125% for health, 110% for pensions) not previously specified for these uses.
• Adds protections like minimum cost requirements and notices, while overriding some prior limitations on transfers and funding calculations.
• ERISA amendments clarify that these transfers do not violate fiduciary duties or plan qualification rules, a shift from treating such moves as potential breaches.

Potential Impacts

• On Employers: Increases flexibility to redirect surplus funds to active employee pensions or benefits, potentially reducing administrative burdens and encouraging plan maintenance or conversions from defined benefit to defined contribution plans. However, deduction limits may increase short-term tax costs.
• On Citizens (Employees and Retirees): Active employees may gain enhanced pension funding or benefits (e.g., health or retirement contributions) without new employer costs. Retirees receive protections via notices, vesting, and no-benefit-reduction rules, but could see indirect effects if plans terminate or convert. No broad impacts on non-employees.
• On Government Agencies: The IRS and Department of Labor (overseeing ERISA) will need to administer new transfer rules, notices, and compliance checks, potentially increasing oversight workload but without new funding mandates.
• On International Relations: None apparent; the bill focuses on domestic U.S. tax and retirement laws.

Main Stakeholders Affected

• Employers: Particularly those with overfunded defined benefit plans or retiree health accounts (e.g., large corporations in industries like manufacturing or utilities).
• Active Employees: Benefit from potential improvements in pension or health funding.
• Retired Employees and Beneficiaries: Protected by notices and vesting but may be indirectly affected by plan changes.
• Plan Administrators and Trustees: Responsible for executing transfers, providing notices, and ensuring compliance.
• Pension Insurance Providers (e.g., PBGC): Affected by surplus calculations tied to premium liabilities, potentially reducing claims if surpluses are redirected.

Notable Legal, Constitutional, or Political Implications

• Legal: Enhances ERISA and tax code compliance by explicitly authorizing transfers, reducing litigation risks over fiduciary duties (e.g., under ERISA Section 408, prohibited transactions). Vesting and notice rules align with due process protections for participants.
• Constitutional: No direct challenges; supports property interests in employer-sponsored benefits without infringing on free speech, equal protection, or other rights.
• Political: Promotes pro-business flexibility in retirement policy, potentially appealing to employers facing funding surpluses amid aging workforces. May face debate over prioritizing active vs. retiree benefits, but includes safeguards to balance interests. As a Senate-introduced bill (by Republicans), it reflects efforts to modernize pension laws without major spending.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Scott, Tim [R-SC]

Cosponsors (3)

Sen. Cassidy, Bill [R-LA], Sen. Tillis, Thomas [R-NC], Sen. Marshall, Roger [R-KS]

Recent Actions

• 2025-06-10: Read twice and referred to the Committee on Finance.
• 2025-06-10: Introduced in Senate

Bill Versions

• Strengthening Benefit Plans Act of 2025 — issued 2025-06-10 — PDF (17 pages)