Brief Case
Pension Resource

I.R.C. § 420

Transfers of excess pension assets to retiree health accounts
USC 2007 ed., current through 2008-01-08 · superseded Jan 5, 2009 · last amended by Pub. L. 110-28
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(a) General rule If there is a qualified transfer of any excess pension assets of a defined benefit plan to a health benefits account which is part of such plan—
(1) a trust which is part of such plan shall not be treated as failing to meet the requirements of subsection (a) or (h) of section 401 solely by reason of such transfer (or any other action authorized under this section),
(2) no amount shall be includible in the gross income of the employer maintaining the plan solely by reason of such transfer,
(3) such transfer shall not be treated—
(A) as an employer reversion for purposes of section 4980, or
(B) as a prohibited transaction for purposes of section 4975, and
(4) the limitations of subsection (d) shall apply to such employer.
(b) Qualified transfer For purposes of this section—
(1) In general The term “qualified transfer” means a transfer—
(A) of excess pension assets of a defined benefit plan to a health benefits account which is part of such plan in a taxable year beginning after December 31, 1990,
(B) which does not contravene any other provision of law, and
(C) with respect to which the following requirements are met in connection with the plan—
(i) the use requirements of subsection (c)(1),
(ii) the vesting requirements of subsection (c)(2), and
(iii) the minimum cost requirements of subsection (c)(3).
(2) Only 1 transfer per year
(A) In general No more than 1 transfer with respect to any plan during a taxable year may be treated as a qualified transfer for purposes of this section.
(B) Exception A transfer described in paragraph (4) shall not be taken into account for purposes of subparagraph (A).
(3) Limitation on amount transferred The amount of excess pension assets which may be transferred in a qualified transfer shall not exceed the amount which is reasonably estimated to be the amount the employer maintaining the plan will pay (whether directly or through reimbursement) out of such account during the taxable year of the transfer for qualified current retiree health liabilities.
(4) Special rule for 1990
(A) In general Subject to the provisions of subsection (c), a transfer shall be treated as a qualified transfer if such transfer—
(i) is made after the close of the taxable year preceding the employer's first taxable year beginning after December 31, 1990, and before the earlier of—
(I) the due date (including extensions) for the filing of the return of tax for such preceding taxable year, or
(II) the date such return is filed, and
(ii) does not exceed the expenditures of the employer for qualified current retiree health liabilities for such preceding taxable year.
(B) Deduction reduced The amount of the deductions otherwise allowable under this chapter to an employer for the taxable year preceding the employer's first taxable year beginning after December 31, 1990, shall be reduced by the amount of any qualified transfer to which this paragraph applies.
(C) Coordination with reduction rule Subsection (e)(1)(B) shall not apply to a transfer described in subparagraph (A).
(5) Expiration No transfer made after December 31, 2013, shall be treated as a qualified transfer.
(c) Requirements of plans transferring assets
(1) Use of transferred assets
(A) In general Any assets transferred to a health benefits account in a qualified transfer (and any income allocable thereto) shall be used only to pay qualified current retiree health liabilities (other than liabilities of key employees not taken into account under subsection (e)(1)(D)) for the taxable year of the transfer (whether directly or through reimbursement).
(B) Amounts not used to pay for health benefits
(i) In general Any assets transferred to a health benefits account in a qualified transfer (and any income allocable thereto) which are not used as provided in subparagraph (A) shall be transferred out of the account to the transferor plan.
(ii) Tax treatment of amounts Any amount transferred out of an account under clause (i)—
(I) shall not be includible in the gross income of the employer for such taxable year, but
(II) shall be treated as an employer reversion for purposes of section 4980 (without regard to subsection (d) thereof).
(C) Ordering rule For purposes of this section, any amount paid out of a health benefits account shall be treated as paid first out of the assets and income described in subparagraph (A).
(2) Requirements relating to pension benefits accruing before transfer
(A) In general The requirements of this paragraph are met if the plan provides that the accrued pension benefits of any participant or beneficiary under the plan become nonforfeitable in the same manner which would be required if the plan had terminated immediately before the qualified transfer (or in the case of a participant who separated during the 1-year period ending on the date of the transfer, immediately before such separation).
(B) Special rule for 1990 In the case of a qualified transfer described in subsection (b)(4), the requirements of this paragraph are met with respect to any participant who separated from service during the taxable year to which such transfer relates by recomputing such participant's benefits as if subparagraph (A) had applied immediately before such separation.
(3) Minimum cost requirements
(A) In general The requirements of this paragraph are met if each group health plan or arrangement under which applicable health benefits are provided provides that the applicable employer cost for each taxable year during the cost maintenance period shall not be less than the higher of the applicable employer costs for each of the 2 taxable years immediately preceding the taxable year of the qualified transfer or, in the case of a transfer which involves a plan maintained by an employer described in subsection (f)(2)(E)(i)(III), if the plan meets the requirements of subsection (f)(2)(D)(i)(II).
(B) Applicable employer cost For purposes of this paragraph, the term “applicable employer cost” means, with respect to any taxable year, the amount determined by dividing—
(i) the qualified current retiree health liabilities of the employer for such taxable year determined—
(I) without regard to any reduction under subsection (e)(1)(B), and
(II) in the case of a taxable year in which there was no qualified transfer, in the same manner as if there had been such a transfer at the end of the taxable year, by
(ii) the number of individuals to whom coverage for applicable health benefits was provided during such taxable year.
(C) Election to compute cost separately An employer may elect to have this paragraph applied separately with respect to individuals eligible for benefits under title XVIII of the Social Security Act at any time during the taxable year and with respect to individuals not so eligible.
(D) Cost maintenance period For purposes of this paragraph, the term “cost maintenance period” means the period of 5 taxable years beginning with the taxable year in which the qualified transfer occurs. If a taxable year is in two or more overlapping cost maintenance periods, this paragraph shall be applied by taking into account the highest applicable employer cost required to be provided under subparagraph (A) for such taxable year.
(E) Regulations
(i) In general The Secretary shall prescribe such regulations as may be necessary to prevent an employer who significantly reduces retiree health coverage during the cost maintenance period from being treated as satisfying the minimum cost requirement of this subsection.
(ii) Insignificant cost reductions permitted
(I) In general An eligible employer shall not be treated as failing to meet the requirements of this paragraph for any taxable year if, in lieu of any reduction of retiree health coverage permitted under the regulations prescribed under clause (i), the employer reduces applicable employer cost by an amount not in excess of the reduction in costs which would have occurred if the employer had made the maximum permissible reduction in retiree health coverage under such regulations. In applying such regulations to any subsequent taxable year, any reduction in applicable employer cost under this clause shall be treated as if it were an equivalent reduction in retiree health coverage.
(II) Eligible employer For purposes of subclause (I), an employer shall be treated as an eligible employer for any taxable year if, for the preceding taxable year, the qualified current retiree health liabilities of the employer were at least 5 percent of the gross receipts of the employer. For purposes of this subclause, the rules of paragraphs (2), (3)(B), and (3)(C) of section 448(c) shall apply in determining the amount of an employer's gross receipts.
(d) Limitations on employer For purposes of this title—
(1) Deduction limitations No deduction shall be allowed—
(A) for the transfer of any amount to a health benefits account in a qualified transfer (or any retransfer to the plan under subsection (c)(1)(B)),
(B) for qualified current retiree health liabilities paid out of the assets (and income) described in subsection (c)(1), or
(C) for any amounts to which subparagraph (B) does not apply and which are paid for qualified current retiree health liabilities for the taxable year to the extent such amounts are not greater than the excess (if any) of—
(i) the amount determined under subparagraph (A) (and income allocable thereto), over
(ii) the amount determined under subparagraph (B).
(2) No contributions allowed An employer may not contribute after December 31, 1990, any amount to a health benefits account or welfare benefit fund (as defined in section 419(e)(1)) with respect to qualified current retiree health liabilities for which transferred assets are required to be used under subsection (c)(1).
(e) Definition and special rules For purposes of this section—
(1) Qualified current retiree health liabilities For purposes of this section—
(A) In general The term “qualified current retiree health liabilities” means, with respect to any taxable year, the aggregate amounts (including administrative expenses) which would have been allowable as a deduction to the employer for such taxable year with respect to applicable health benefits provided during such taxable year if—
(i) such benefits were provided directly by the employer, and
(ii) the employer used the cash receipts and disbursements method of accounting.
For purposes of the preceding sentence, the rule of section 419(c)(3)(B) shall apply.
(B) Reductions for amounts previously set aside The amount determined under subparagraph (A) shall be reduced by the amount which bears the same ratio to such amount as—
(i) the value (as of the close of the plan year preceding the year of the qualified transfer) of the assets in all health benefits accounts or welfare benefit funds (as defined in section 419(e)(1)) set aside to pay for the qualified current retiree health liability, bears to
(ii) the present value of the qualified current retiree health liabilities for all plan years (determined without regard to this subparagraph).
(C) Applicable health benefits The term “applicable health benefits” means health benefits or coverage which are provided to—
(i) retired employees who, immediately before the qualified transfer, are entitled to receive such benefits upon retirement and who are entitled to pension benefits under the plan, and
(ii) their spouses and dependents.
(D) Key employees excluded If an employee is a key employee (within the meaning of section 416(i)(1)) with respect to any plan year ending in a taxable year, such employee shall not be taken into account in computing qualified current retiree health liabilities for such taxable year or in calculating applicable employer cost under subsection (c)(3)(B).
(2) Excess pension assets The term “excess pension assets” means the excess (if any) of—
(A) the lesser of—
(i) the fair market value of the plan's assets (reduced by the prefunding balance and funding standard carryover balance determined under section 430(f)), or
(ii) the value of plan assets as determined under section 430(g)(3) after reduction under section 430(f), over
(B) 125 percent of the sum of the funding target and the target normal cost determined under section 430 for such plan year.
(3) Health benefits account The term “health benefits account” means an account established and maintained under section 401(h).
(4) Coordination with section 430 In the case of a qualified transfer, any assets so transferred shall not, for purposes of this section and section 430, be treated as assets in the plan.
(5) Application to multiemployer plans In the case of a multiemployer plan, this section shall be applied to any such plan—
(A) by treating any reference in this section to an employer as a reference to all employers maintaining the plan (or, if appropriate, the plan sponsor), and
(B) in accordance with such modifications of this section (and the provisions of this title relating to this section) as the Secretary determines appropriate to reflect the fact the plan is not maintained by a single employer.
(f) Qualified transfers to cover future retiree health costs and collectively bargained retiree health benefits
(1) In general An employer maintaining a defined benefit plan (other than a multiemployer plan) may, in lieu of a qualified transfer, elect for any taxable year to have the plan make—
(A) a qualified future transfer, or
(B) a collectively bargained transfer.
Except as provided in this subsection, a qualified future transfer and a collectively bargained transfer shall be treated for purposes of this title and the Employee Retirement Income Security Act of 1974 as if it were a qualified transfer.
(2) Qualified future and collectively bargained transfers For purposes of this subsection—
(A) In general The terms “qualified future transfer” and “collectively bargained transfer” mean a transfer which meets all of the requirements for a qualified transfer, except that—
(i) the determination of excess pension assets shall be made under subparagraph (B),
(ii) the limitation on the amount transferred shall be determined under subparagraph (C),
(iii) the minimum cost requirements of subsection (c)(3) shall be modified as provided under subparagraph (D), and
(iv) in the case of a collectively bargained transfer, the requirements of subparagraph (E) shall be met with respect to the transfer.
(B) Excess pension assets
(i) In general In determining excess pension assets for purposes of this subsection, subsection (e)(2) shall be applied by substituting “120 percent” for “125 percent”.
(ii) Requirement to maintain funded status If, as of any valuation date of any plan year in the transfer period, the amount determined under subsection (e)(2)(B) (after application of clause (i)) exceeds the amount determined under subsection (e)(2)(A), either—
(I) the employer maintaining the plan shall make contributions to the plan in an amount not less than the amount required to reduce such excess to zero as of such date, or
(II) there is transferred from the health benefits account to the plan an amount not less than the amount required to reduce such excess to zero as of such date.
(C) Limitation on amount transferred Notwithstanding subsection (b)(3), the amount of the excess pension assets which may be transferred—
(i) in the case of a qualified future transfer shall be equal to the sum of—
(I) if the transfer period includes the taxable year of the transfer, the amount determined under subsection (b)(3) for such taxable year, plus
(II) in the case of all other taxable years in the transfer period, the sum of the qualified current retiree health liabilities which the plan reasonably estimates, in accordance with guidance issued by the Secretary, will be incurred for each of such years, and
(ii) in the case of a collectively bargained transfer, shall not exceed the amount which is reasonably estimated, in accordance with the provisions of the collective bargaining agreement and generally accepted accounting principles, to be the amount the employer maintaining the plan will pay (whether directly or through reimbursement) out of such account during the collectively bargained cost maintenance period for collectively bargained retiree health liabilities.
(D) Minimum cost requirements
(i) In general The requirements of subsection (c)(3) shall be treated as met if—
(I) in the case of a qualified future transfer, each group health plan or arrangement under which applicable health benefits are provided provides applicable health benefits during the period beginning with the first year of the transfer period and ending with the last day of the 4th year following the transfer period such that the annual average amount of such 1 the applicable employer cost during such period is not less than the applicable employer cost determined under subsection (c)(3)(A) with respect to the transfer, and
(II) in the case of a collectively bargained transfer, each collectively bargained group health plan under which collectively bargained health benefits are provided provides that the collectively bargained employer cost for each taxable year during the collectively bargained cost maintenance period shall not be less than the amount specified by the collective bargaining agreement.
(ii) Election to maintain benefits for future transfers An employer may elect, in lieu of the requirements of clause (i)(I), to meet the requirements of subsection (c)(3) by meeting the requirements of such subsection (as in effect before the amendments made by section 535 of the Tax Relief Extension Act of 1999) for each of the years described in the period under clause (i)(I).
(iii) Collectively bargained employer cost For purposes of this subparagraph, the term “collectively bargained employer cost” means the average cost per covered individual of providing collectively bargained retiree health benefits as determined in accordance with the applicable collective bargaining agreement. Such agreement may provide for an appropriate reduction in the collectively bargained employer cost to take into account any portion of the collectively bargained retiree health benefits that is provided or financed by a government program or other source.
(E) Special rules for collectively bargained transfers
(i) In general A collectively bargained transfer shall only include a transfer which—
(I) is made in accordance with a collective bargaining agreement,
(II) before the transfer, the employer designates, in a written notice delivered to each employee organization that is a party to the collective bargaining agreement, as a collectively bargained transfer in accordance with this section, and
(III) involves a plan maintained by an employer which, in its taxable year ending in 2005, provided health benefits or coverage to retirees and their spouses and dependents under all of the benefit plans maintained by the employer, but only if the aggregate cost (including administrative expenses) of such benefits or coverage which would have been allowable as a deduction to the employer (if such benefits or coverage had been provided directly by the employer and the employer used the cash receipts and disbursements method of accounting) is at least 5 percent of the gross receipts of the employer (determined in accordance with the last sentence of subsection (c)(3)(E)(ii)(II)) for such taxable year, or a plan maintained by a successor to such employer.
(ii) Use of assets Any assets transferred to a health benefits account in a collectively bargained transfer (and any income allocable thereto) shall be used only to pay collectively bargained retiree health liabilities (other than liabilities of key employees not taken into account under paragraph (6)(B)(iii)) for the taxable year of the transfer or for any subsequent taxable year during the collectively bargained cost maintenance period (whether directly or through reimbursement).
(3) Coordination with other transfers In applying subsection (b)(3) to any subsequent transfer during a taxable year in a transfer period or collectively bargained cost maintenance period, qualified current retiree health liabilities shall be reduced by any such liabilities taken into account with respect to the qualified future transfer or collectively bargained transfer to which such period relates.
(4) Special deduction rules for collectively bargained transfers In the case of a collectively bargained transfer—
(A) the limitation under subsection (d)(1)(C) shall not apply, and
(B) notwithstanding subsection (d)(2), an employer may contribute an amount to a health benefits account or welfare benefit fund (as defined in section 419(e)(1)) with respect to collectively bargained retiree health liabilities for which transferred assets are required to be used under subsection (c)(1)(B), and the deductibility of any such contribution shall be governed by the limits applicable to the deductibility of contributions to a welfare benefit fund under a collective bargaining agreement (as determined under section 419A(f)(5)(A)) without regard to whether such contributions are made to a health benefits account or welfare benefit fund and without regard to the provisions of section 404 or the other provisions of this section.
The Secretary shall provide rules to ensure that the application of this paragraph does not result in a deduction being allowed more than once for the same contribution or for 2 or more contributions or expenditures relating to the same collectively bargained retiree health liabilities.
(5) Transfer period For purposes of this subsection, the term “transfer period” means, with respect to any transfer, a period of consecutive taxable years (not less than 2) specified in the election under paragraph (1) which begins and ends during the 10-taxable-year period beginning with the taxable year of the transfer.
(6) Terms relating to collectively bargained transfers For purposes of this subsection—
(A) Collectively bargained cost maintenance period The term “collectively bargained cost maintenance period” means, with respect to each covered retiree and his covered spouse and dependents, the shorter of—
(i) the remaining lifetime of such covered retiree and his covered spouse and dependents, or
(ii) the period of coverage provided by the collectively bargained health plan (determined as of the date of the collectively bargained transfer) with respect to such covered retiree and his covered spouse and dependents.
(B) Collectively bargained retiree health liabilities
(i) In general The term “collectively bargained retiree health liabilities” means the present value, as of the beginning of a taxable year and determined in accordance with the applicable collective bargaining agreement, of all collectively bargained health benefits (including administrative expenses) for such taxable year and all subsequent taxable years during the collectively bargained cost maintenance period.
(ii) Reduction for amounts previously set aside The amount determined under clause (i) shall be reduced by the value (as of the close of the plan year preceding the year of the collectively bargained transfer) of the assets in all health benefits accounts or welfare benefit funds (as defined in section 419(e)(1)) set aside to pay for the collectively bargained retiree health liabilities.
(iii) Key employees excluded If an employee is a key employee (within the meaning of section 416(I)(1)) 2 with respect to any plan year ending in a taxable year, such employee shall not be taken into account in computing collectively bargained retiree health liabilities for such taxable year or in calculating collectively bargained employer cost under subsection (c)(3)(C).
(C) Collectively bargained health benefits The term “collectively bargained health benefits” means health benefits or coverage which are provided to—
(i) retired employees who, immediately before the collectively bargained transfer, are entitled to receive such benefits upon retirement and who are entitled to pension benefits under the plan, and their spouses and dependents, and
(ii) if specified by the provisions of the collective bargaining agreement governing the collectively bargained transfer, active employees who, following their retirement, are entitled to receive such benefits and who are entitled to pension benefits under the plan, and their spouses and dependents.
(D) Collectively bargained health plan The term “collectively bargained health plan” means a group health plan or arrangement for retired employees and their spouses and dependents that is maintained pursuant to 1 or more collective bargaining agreements.
Source credit, amendments & notes

(Added Pub. L. 101–508, title XII, §12011(a), Nov. 5, 1990, 104 Stat. 1388–567; amended Pub. L. 103–465, title VII, §731(a)–(c)(3), Dec. 8, 1994, 108 Stat. 5003, 5004; Pub. L. 104–188, title I, §1704(a), (t)(32), Aug. 20, 1996, 110 Stat. 1878, 1889; Pub. L. 106–170, title V, §535(a)(1), (b), Dec. 17, 1999, 113 Stat. 1934; Pub. L. 108–218, title II, §204(a), Apr. 10, 2004, 118 Stat. 609; Pub. L. 108–357, title VII, §709(b)(1), (2), Oct. 22, 2004, 118 Stat. 1551, 1552; Pub. L. 109–280, title I, §114(d), title VIII, §§841(a), 842(a), Aug. 17, 2006, 120 Stat. 854, 1005, 1009; Pub. L. 110–28, title VI, §§6612(a), (b), 6613(a), May 25, 2007, 121 Stat. 181.)

References in Text

The Social Security Act, referred to in subsec. (c)(3)(C), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Title XVIII of the Act is classified generally to subchapter XVIII (§1395 et seq.) of chapter 7 of Title 42, The Public Health and Welfare. For complete classification of this Act to the Code, see section 1305 of Title 42 and Tables.

The Employee Retirement Income Security Act of 1974, referred to in subsec. (f)(1), is Pub. L. 93–406, Sept. 2, 1974, 88 Stat. 829, as amended, which is classified principally to chapter 18 (§1001 et seq.) of Title 29, Labor. For complete classification of this Act to the Code, see Short Title note set out under section 1001 of Title 29 and Tables.

Subsection (c)(3) as in effect before the amendments made by section 535 of the Tax Relief Extension Act of 1999, referred to in subsec. (f)(2)(D)(ii), is subsec. (c)(3) of this section prior to its general amendment by section 535(b)(1) of Pub. L. 106–170.

Amendments

2007—Subsec. (c)(3)(A). Pub. L. 110–28, §6613(a), substituted “transfer or, in the case of a transfer which involves a plan maintained by an employer described in subsection (f)(2)(E)(i)(III), if the plan meets the requirements of subsection (f)(2)(D)(i)(II).” for “transfer.”

Subsec. (e)(2)(B). Pub. L. 110–28, §6612(b), substituted “funding target” for “funding shortfall”.

Subsec. (f)(2)(E)(i)(III). Pub. L. 110–28, §6612(a), substituted “subsection (c)(3)(E)(ii)(II)” for “subsection (c)(2)(E)(ii)(II)”.

2006—Subsec. (a). Pub. L. 109–280, §842(a)(1), struck out “(other than a multiemployer plan)” after “defined benefit plan” in introductory provisions.

Subsec. (e)(2). Pub. L. 109–280, §114(d)(1), reenacted heading without change and amended text of par. (2) generally. Prior to amendment, text read as follows: “The term ‘excess pension assets’ means the excess (if any) of—

“(A) the amount determined under section 412(c)(7)(A)(ii), over

“(B) the greater of—

“(i) the amount determined under section 412(c)(7)(A)(i), or

“(ii) 125 percent of current liability (as defined in section 412(c)(7)(B)).

The determination under this paragraph shall be made as of the most recent valuation date of the plan preceding the qualified transfer.”

Subsec. (e)(4). Pub. L. 109–280, §114(d)(2), amended heading and text of par. (4) generally. Prior to amendment, text read as follows: “In the case of a qualified transfer to a health benefits account—

“(A) any assets transferred in a plan year on or before the valuation date for such year (and any income allocable thereto) shall, for purposes of section 412, be treated as assets in the plan as of the valuation date for such year, and

“(B) the plan shall be treated as having a net experience loss under section 412(b)(2)(B)(iv) in an amount equal to the amount of such transfer (reduced by any amounts transferred back to the pension plan under subsection (c)(1)(B)) and for which amortization charges begin for the first plan year after the plan year in which such transfer occurs, except that such section shall be applied to such amount by substituting ‘10 plan years’ for ‘5 plan years’.”

Subsec. (e)(5). Pub. L. 109–280, §842(a)(2), added par. (5).

Subsec. (f). Pub. L. 109–280, §841(a), added subsec. (f).

2004—Subsec. (b)(5). Pub. L. 108–218 substituted “2013” for “2005”.

Subsec. (c)(3)(E). Pub. L. 108–357 designated existing provisions as cl. (i), inserted heading, and added cl. (ii).

1999—Subsec. (b)(1)(C)(iii). Pub. L. 106–170, §535(b)(2)(A), substituted “cost” for “benefits”.

Subsec. (b)(5). Pub. L. 106–170, §535(a)(1), substituted “made after December 31, 2005” for “in any taxable year beginning after December 31, 2000”.

Subsec. (c)(3). Pub. L. 106–170, §535(b)(1), amended heading and text of par. (3) generally, substituting present provisions for provisions relating to maintenance of benefit requirements.

Subsec. (e)(1)(D). Pub. L. 106–170, §535(b)(2)(B), substituted “or in calculating applicable employer cost under subsection (c)(3)(B)” for “and shall not be subject to the minimum benefit requirements of subsection (c)(3)”.

1996—Pub. L. 104–188, §1704(a), provided that, except as otherwise expressly provided, whenever in title XII of Pub. L. 101–508 an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. Section 12011(a) of title XII of Pub. L. 101–508 directed the amendment of part I of subchapter D of chapter 1 by adding this subpart, including this section, without specifying that amendment was to the Internal Revenue Code of 1986.

Subsec. (e)(1)(C). Pub. L. 104–188, §1704(t)(32), substituted “means” for “mean”.

1994—Subsec. (b)(1)(C)(iii). Pub. L. 103–465, §731(c)(1), substituted “benefits” for “cost”.

Subsec. (b)(5). Pub. L. 103–465, §731(a), substituted “2000” for “1995”.

Subsec. (c)(3). Pub. L. 103–465, §731(b), amended par. (3) generally, substituting present provisions for provisions outlining minimum cost requirements for plans, providing for elections to compute costs separately, and defining “applicable employer cost” and “cost maintenance period”.

Subsec. (e)(1)(B). Pub. L. 103–465, §731(c)(2), reenacted subpar. (B) heading without change and amended text generally. Prior to amendment, text read as follows: “The amount determined under subparagraph (A) shall be reduced by any amount previously contributed to a health benefits account or welfare benefit fund (as defined in section 419(e)(1)) to pay for the qualified current retiree health liabilities. The portion of any reserves remaining as of the close of December 31, 1990, shall be allocated on a pro rata basis to qualified current retiree health liabilities.”

Subsec. (e)(1)(D). Pub. L. 103–465, §731(c)(3), substituted “and shall not be subject to the minimum benefit requirements of subsection (c)(3)” for “or in calculating applicable employer cost under subsection (c)(3)(B)”.

Effective Date of 2007 Amendment

Pub. L. 110–28, title VI, §6612(c), May 25, 2007, 121 Stat. 181, provided that: “The amendments made by this section [amending this section] shall take effect as if included in the provisions of the Pension Protection Act of 2006 [Pub. L. 109–280] to which they relate.”

Pub. L. 110–28, title VI, §6613(b), May 25, 2007, 121 Stat. 181, provided that: “The amendment made by subsection (a) [amending this section] shall apply to transfers after the date of the enactment of this Act [May 25, 2007].”

Effective Date of 2006 Amendment

Pub. L. 109–280, title VIII, §841(b), Aug. 17, 2006, 120 Stat. 1009, provided that: “The amendments made by this section [amending this section] shall apply to transfers after the date of the enactment of this Act [Aug. 17, 2006].”

Pub. L. 109–280, title VIII, §842(b), Aug. 17, 2006, 120 Stat. 1009, provided that: “The amendment made by this section [amending this section] shall apply to transfers made in taxable years beginning after December 31, 2006.”

Effective Date of 2004 Amendment

Pub. L. 108–357, title VII, §709(b)(3), Oct. 22, 2004, 118 Stat. 1552, provided that: “The amendments made by this subsection [amending this section] shall apply to taxable years ending after the date of the enactment of this Act [Oct. 22, 2004].”

Effective Date of 1999 Amendment

Pub. L. 106–170, title V, §535(c), Dec. 17, 1999, 113 Stat. 1935, provided that:

“(1) In general.—The amendments made by this section [amending this section and sections 1021, 1103, and 1108 of Title 29, Labor] shall apply to qualified transfers occurring after the date of the enactment of this Act [Dec. 17, 1999].

“(2) Transition rule.—If the cost maintenance period for any qualified transfer after the date of the enactment of this Act [Dec. 17, 1999] includes any portion of a benefit maintenance period for any qualified transfer on or before such date, the amendments made by subsection (b) [amending this section] shall not apply to such portion of the cost maintenance period (and such portion shall be treated as a benefit maintenance period).”

Effective Date of 1994 Amendment

Section 731(d) of Pub. L. 103–465 provided that:

“(1) Extension.—The amendments made by subsections (a) and (c)(3) [amending this section] shall apply to taxable years beginning after December 31, 1995.

“(2) Benefits.—The amendments made by subsections (b) and (c)(1) and (2) [amending this section] shall apply to qualified transfers occurring after the date of the enactment of this Act [Dec. 8, 1994].”

Effective Date

Section 12011(c) of Pub. L. 101–508 provided that:

“(1) In general.—The amendments made by this section [enacting this section and amending section 401 of this title] shall apply to transfers in taxable years beginning after December 31, 1990.

“(2) Waiver of estimated tax penalties.—No addition to tax shall be made under section 6654 or section 6655 of the Internal Revenue Code of 1986 for the taxable year preceding the taxpayer's 1st taxable year beginning after December 31, 1990, with respect to any underpayment to the extent such underpayment was created or increased by reason of section 420(b)(4)(B) of such Code (as added by subsection (a)).”

Applicability of Amendments by Subtitles A and B of Title I of Pub. L. 109–280

For special rules on applicability of amendments by subtitles A (§§101–107) and B (§§111–116) of title I of Pub. L. 109–280 to certain eligible cooperative plans, PBGC settlement plans, and eligible government contractor plans, see sections 104, 105, and 106 of Pub. L. 109–280, set out as notes under section 401 of this title.

I.R.C. § 420 — Transfers of excess pension assets to retiree health accounts · USC 2007 ed., current through 2008-01-08 · https://pensionresource.website/EAMain?content=EAMain.Law&id=irc-420&asof=2008-01-08 · printed Oct 16, 2026
On this page
  • (a) General rule
  • (b) Qualified transfer
  • (c) Requirements of plans transferring assets
  • (d) Limitations on employer
  • (e) Definition and special rules
  • (f) Qualified transfers to cover future retiree health costs an…
Cited by (code & regs)
Glossary
key employee
Officer, 5% owner, or 1% owner as defined for top-heavy testing.
Treasury Regulations
Guidance addressing this section
IRS / Treasury
Revenue Procedures
  • Rev. Proc. 2026-4Modified Dec 29, 2025 — This revenue procedure contains updates relating to the types of advice the Internal Revenue Service provides to taxpayers on issues under the jurisdiction of … (c)(3)(e)(1)(e)(2)
    Modified by Rev. Proc. 2026-30
  • Rev. Proc. 2025-4Superseded Dec 30, 2024 — This document updates Rev. Proc. 2024-4, 2024-1 IRB 160, relating to the types of advice the IRS provides to taxpayers on issues under the jurisdiction of the … (c)(3)(e)(1)(e)(2)
    Superseded by Rev. Proc. 2026-4
  • Rev. Proc. 2024-4Superseded Jan 2, 2024 — This document updates Rev. Proc. 2023-4, 2023-1 IRB 162, relating to the types of advice the IRS provides to taxpayers on issues under the jurisdiction of the … (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
    Superseded by Rev. Proc. 2025-4
  • Rev. Proc. 2023-4Superseded Jan 3, 2023 — This document updates Rev. Proc. 2022-4, 2022-1 IRB 161, relating to the types of advice the IRS provides to taxpayers on issues under the jurisdiction of the … (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
    Superseded by Rev. Proc. 2024-4
  • Rev. Proc. 2022-4Superseded Jan 3, 2022 — This document updates Rev. Proc. 2021-4, 2021-1 IRB 157, relating to the types of advice the IRS provides to taxpayers on issues under the jurisdiction of the … (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
    Superseded by Rev. Proc. 2023-4
  • Rev. Proc. 2021-4Superseded Jan 4, 2021 — This document updates Rev. Proc. 2020-4, 2020-1 I.R.B. 148, relating to the types of advice the IRS provides to taxpayers on issues under the jurisdiction of t… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
    Superseded by Rev. Proc. 2022-4
  • Rev. Proc. 2020-4 Jan 2, 2020 — This revenue procedure contains information on the types of advice provided by the Commissioner, Tax Exempt and Government Entities Division, Employee Plans Ru… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
  • Rev. Proc. 2019-4 Jan 2, 2019 — This procedure contains revised procedures for determination letters and letter rulings issued by the Commissioner, Tax Exempt Agreements Office. Rev. Proc. 20… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
  • Rev. Proc. 2018-4 Jan 2, 2018 — This procedure contains revised procedures for determination letters and letter rulings issued by the Commissioner, Tax Exempt and Government Entities Division… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
  • Rev. Proc. 2017-4 Jan 3, 2017 — This procedure contains consolidated and revised procedures for determination letters and letter rulings issued by the Commissioner, Tax Exempt and Government … (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
Revenue Rulings
  • Rev. Rul. 2005-60 Sep 12, 2005 — Minimum cost requirement; deductibility; section 101 of Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA). This ruling holds that the… (a)(b)(c)(3)(c)(3)(A)(c)(3)(B)(c)(3)(C)
  • Rev. Rul. 2004-65 Jul 6, 2004 — Post-retirement health benefits; waiver. This ruling holds that an employer has reduced retiree health coverage, within the meaning of section 420(c)(2)(E) of … (c)(2)(E)
Also cited in 33 other documents
IRS / Treasury
Notices
  • Notice 2026-34 Jun 1, 2026 — 2026 Cumulative List of Changes in Plan Qualification Requirements for Defined Benefit Qualified Pre-approved Plans
  • Notice 2026-31 Jun 1, 2026 — This notice sets forth updates on the corporate bond monthly yield curve, the corresponding spot segment rates for April 2026 used under § 417(e)(3)(D), the 24…
  • Notice 2015-84 Dec 28, 2015 — The Notice provides a list of changes in plan qualification requirements to be used by plan sponsors submitting determination letter applications for plans dur…
  • Notice 2014-77 Dec 22, 2014 — This notice contains the 2014 Cumulative List of Changes in Plan Qualification Requirements (2014 Cumulative List) described in section 4 of Rev. Proc. 2007–44…
  • Notice 2013-84 Dec 23, 2013 — This notice contains the 2013 Cumulative List of Changes in Plan Qualification Requirements (2013 Cumulative List) described in section 4 of Rev. Proc. 2007–44…
  • Notice 2012-76 Dec 27, 2012 — This notice contains the 2012 Cumulative List of Changes in Plan Qualification Requirements (2012 Cumulative List) described in section 4 of Rev. Proc. 2007-44… (c)(3)(A)(e)(2)(e)(2)(B)
  • Notice 2012-61 Oct 15, 2012 — This notice provides guidance on the special rules relating to pension funding stabilization for single employer defined benefit pension plans under amendments…
  • Notice 2011-97 Dec 27, 2011 — This notice contains the 2011 Cumulative List of Changes in Plan Qualification Requirements (2011 Cumulative List) described in section 4 of Rev. Proc. 2007-44… (c)(3)(A)(e)(2)(e)(2)(B)
  • Notice 2010-90 Dec 27, 2010 — This notice contains the 2010 Cumulative List of Changes in Plan Qualification Requirements (2010 Cumulative List) described in section 4 of Rev. Proc. 2007-44… (c)(3)(A)(e)(2)(e)(2)(B)
  • Notice 2009-98 Dec 28, 2009 — Retirement plans; qualification, list of changes. This notice sets forth a list of changes referred to in Rev. Proc. 2007-44, 2007-2 C.B. 54, pertaining to the… (c)(3)(A)(e)(2)(e)(2)(B)
  • Notice 2008-108 Dec 15, 2008 — Retirement plans; qualification, list of changes. This notice sets forth a list of changes referred to in Rev. Proc. 2007-44, 2007-2 C.B. 54, pertaining to the… (c)(3)(A)(e)(2)(e)(2)(B)
  • Notice 2007-94 Dec 17, 2007 — Retirement plans; qualification, list of changes. This notice sets forth a list of changes referred to in Rev. Proc. 2007-44, 2007-28 I.R.B. 54, pertaining to … (c)(3)(A)(e)(2)(B)
Revenue Procedures
  • Rev. Proc. 2016-6 Jan 4, 2016 — Revised procedures are provided for issuing determination letters on the qualified status of employee plans under sections 401(a), 403(a), 409 and 4975 of the … (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
  • Rev. Proc. 2015-6 Jan 2, 2015 — Revised procedures are provided for issuing determination letters on the qualified status of employee plans under sections 401(a), 403(a), 409 and 4975 of the … (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
  • Rev. Proc. 2014-4 Jan 2, 2014 — Rulings and information letters; issuance procedures. Revised procedures are provided for furnishing ruling letters, information letters, etc., on matters rela…
  • Rev. Proc. 2014-6 Jan 2, 2014 — Employee plans determination letters. Revised procedures are provided for issuing determination letters on the qualified status of employee plans under section… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
  • Rev. Proc. 2014-8 Jan 2, 2014 — User fees for employee plans and exempt organizations. Current guidance for complying with the user fee program of the Service as it pertains to requests for l…
  • Rev. Proc. 2013-4Modified Jan 2, 2013 — Rulings and information letters; issuance procedures. Revised procedures are provided for furnishing ruling letters, information letters, etc., on matters rela…
    Modified by Rev. Proc. 2013-22
  • Rev. Proc. 2013-6 Jan 2, 2013 — Employee plans determination letters. Revised procedures are provided for issuing determination letters on the qualified status of employee plans under section… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
  • Rev. Proc. 2013-8Modified Jan 2, 2013 — User fees for employee plans and exempt organizations. Current guidance for complying with the user fee program of the Service as it pertains to requests for l…
    Modified by Rev. Proc. 2013-22
  • Rev. Proc. 2012-6Superseded Jan 3, 2012 — Employee plans determination letters. Revised procedures are provided for issuing determination letters on the qualified status of employee plans under section… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
    Superseded by Rev. Proc. 2013-6
  • Rev. Proc. 2011-6Superseded Jan 3, 2011 — Employee plans determination letters. Revised procedures are provided for issuing determination letters on the qualified status of employee plans under section… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)(e)(5)
    Superseded by Rev. Proc. 2012-6
  • Rev. Proc. 2010-6Superseded Jan 4, 2010 — Employee plans determination letters. Revised procedures are provided for issuing determination letters on the qualified status of employee plans under section… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)(e)(5)
    Superseded by Rev. Proc. 2011-6
  • Rev. Proc. 2009-6Superseded Jan 5, 2009 — Employee plans determination letters. Revised procedures are provided for issuing determination letters on the qualified status of employee plans under section… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)(e)(5)
    Superseded by Rev. Proc. 2010-6
  • Rev. Proc. 2008-6Superseded Jan 7, 2008 — Employee plans determination letters. Revised procedures are provided for issuing determination letters on the qualified status of employee plans under section… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
    Superseded by Rev. Proc. 2009-6
  • Rev. Proc. 2007-6Superseded Jan 2, 2007 — Employee plans determination letters. Revised procedures are provided for issuing determination letters on the qualified status of employee plans under section… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
    Superseded by Rev. Proc. 2008-6
  • Rev. Proc. 2006-6Superseded Jan 3, 2006 — Employee plans determination letters. Revised procedures are provided for issuing determination letters on the qualified status of employee plans under section… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
    Superseded by Rev. Proc. 2007-6
  • Rev. Proc. 2005-6Superseded Jan 3, 2005 — Employee plans determination letters. Revised procedures are provided for issuing determination letters on the qualified status of employee plans under section… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
    Superseded by Rev. Proc. 2006-6
  • Rev. Proc. 2004-6Superseded Jan 5, 2004 — Employee plans determination letters. Revised procedures are provided for issuing determination letters on the qualified status of employee plans under section… (b)(4)(c)(2)(c)(3)(e)(1)(e)(2)
    Superseded by Rev. Proc. 2005-6
Proposed Rules
  • REG-159704-03Proposed Nov 16, 2009 — Proposed regulations contain proposed amendments to 20 CFR part 901 relating to the enrollment of actuaries under section 3042 of the Employee Retirement Incom…
  • REG-139236-07Proposed Mar 3, 2008 — Proposed regulations under section 430 of the Code provide guidance on the valuation of plan assets and the determination of benefit liabilities for purposes o…
  • REG-148393-06Proposed Sep 24, 2007 — Proposed regulations under section 402 of the Code clarify that a payment from a qualified plan for an accident or health insurance premium generally constitut…
PBGC
Proposed Rules
  • 78 FR 20039Proposed Apr 3, 2013 — Reportable Events and Certain Other Notification Requirements Comments due Jun 3, 2013 (f)

No court rulings in the library cite this provision yet.

Private Letter Rulings (16)
Private Letter Rulings (16)
Rulings primarily about this provision
Also cite this provision (15)
  • PLR 202551032 Dec 19, 2025 — Qualified Pension, Profit-Sharing, and Stock Bonus Plan UIL 401.00-00, 401.27-00
  • PLR 202548023 Nov 28, 2025 — Qualified Pension, Profit-Sharing, and Stock Bonus Plan UIL 401.00-00, 401.27-00
  • PLR 202547007 Nov 21, 2025 — Medical, Etc. Benefits UIL 401.27-00
  • PLR 202531003 Aug 1, 2025 — Medical, Etc. Benefits UIL 401.27-00
  • PLR 202528003 Jul 11, 2025 — Qualified Pension, Profit-Sharing, and Stock Bonus Plan UIL 401.00-00, 401.27-00, 4980.00-00
  • PLR 202525012 Jun 20, 2025 — Medical, Etc. Benefits UIL 401.27-00
  • PLR 202515012 Apr 11, 2025 — Medical, Etc. Benefits UIL 401.27-00
  • PLR 202451017 Dec 20, 2024 — Medical, Etc. Benefits UIL 401.27-00
  • PLR 202443017 Oct 25, 2024 — Qualified Pension, Profit-Sharing, and Stock Bonus Plan UIL 401.00-00, 401.27-00
  • PLR 202434004 Aug 23, 2024 — Medical, Etc. Benefits UIL 401.27-00
  • PLR 202305001 Feb 3, 2023 — Qualified Pension, Profit-Sharing, and Stock Bonus Plan UIL 401.00-00, 401.27-00
  • PLR 201805002 Feb 2, 2018 — Medical, Etc. Benefits UIL 401.27-00
  • PLR 201639001 Sep 23, 2016 — Medical, Etc. Benefits UIL 401.27-00
  • PLR 201625005 Jun 17, 2016 — Medical, Etc. Benefits UIL 401.27-00, 4980.00-00
  • PLR 201611003 Mar 11, 2016 — Medical, Etc. Benefits UIL 401.27-00

Each row is a version of the text as published by the official source. Code dates are the edition/release point that first reflected the change; regulation dates are eCFR effective dates. The library checks the official sources automatically, so new versions appear here on their own; “run” opens the sync that recorded a version.

EffectiveThroughSourceAmended by
Jan 4, 1995Jan 5, 1997USC 1994 ed., current through 1995-01-04 run 49Pub. L. 103-465View
Jan 6, 1997Jan 22, 2000USC 1996 ed., current through 1997-01-06 run 61Pub. L. 104-188View · Redline (sign in)
Jan 23, 2000Jan 1, 2006USC 1999 ed., current through 2000-01-23 run 73Pub. L. 106-170View · Redline (sign in)
Jan 2, 2006Jan 2, 2007USC 2005 ed., current through 2006-01-02 run 98Pub. L. 108-357View · Redline (sign in)
Jan 3, 2007Jan 7, 2008USC 2006 ed., current through 2007-01-03 run 102Pub. L. 109-280View · Redline (sign in)
Jan 8, 2008Jan 4, 2009USC 2007 ed., current through 2008-01-08 run 107Pub. L. 110-28View · Redline (sign in)
Jan 5, 2009Jan 14, 2013USC 2008 ed., current through 2009-01-05 run 111Pub. L. 110-458View · Redline (sign in)
Jan 15, 2013Jan 4, 2015USC 2013 ed., current through 2014-01-16 run 13Pub. L. 112-141View · Redline (sign in)
Jan 5, 2015Jan 2, 2016USC 2014 ed., current through 2015-01-05 run 14Pub. L. 113-97View · Redline (sign in)
Jan 3, 2016Jan 13, 2019USC 2015 ed., current through 2016-01-03 run 15Pub. L. 114-41View · Redline (sign in)
Jan 14, 2019Jan 12, 2021USC 2018 ed., current through 2019-01-14 run 18Pub. L. 115-141View · Redline (sign in)
Jan 13, 2021Jan 4, 2023USC 2020 ed., current through 2021-01-13 run 20Pub. L. 116-260View · Redline (sign in)
Jan 5, 2023currentUSC 2024 ed., current through 2025-01-06 run 1Pub. L. 117-328View · Redline (sign in)
Provision-level history (blame)