July 20, 2015
House Approves Transportation Funding Measure with Extension of Section 420 Transfers
In a 312-119 vote, the U.S. House of Representatives approved the Highway and Transportation Funding Act of 2015, Part II (H.R. 3038), a short-term extension of highway and transportation project funding through December 18, 2015. One of the revenue measures used to offset the cost of extending the highway funding is a provision allowing employers to transfer excess defined benefit plan assets to retiree medical accounts and group-term life insurance under Internal Revenue Code Section 420, also called Section 420 transfers.
The measure extends a provision that was included in the Moving Ahead for Progress in the 21st Century (MAP-21) Act of 2012. At that time the Section 420 transfers were extended through the end of 2021. The highway bill approved last week would further extend it through the end of 2025.
Section 420, originally enacted in 1990, permits the transfer of assets from significantly overfunded pension plans (that is, plans with assets in excess of either 120 percent or 125 percent of liabilities depending on the type of transfer) to pay for retiree health care costs. The Council has consistently argued that Section 420 transfers facilitate the continuation of retiree health insurance for countless retirees. And this is accomplished without negative implications for pension funding, since it only applies to substantially overfunded plans. The expansion of Section 420 to permit transfers to pay the costs of retiree life insurance also provides additional financial security for seniors. The Council’s support for Section 420 expansion was described in a letter to the House Ways and Means committee leadership when the issue was being examined in the context of the MAP-21 legislation (see the February 16, 2012, Benefits Byte).
H.R. 3038 supplements the Highway and Transportation Funding Act of 2015, passed earlier this spring. It is now up to the U.S. Senate to pass legislation continuing highway and transportation project funding.