(a) In general

Section 420 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

(h) Transfer of excess health assets for funding active employee benefits

(1) In general

In the case of a pension plan with excess health assets for a fiscal year—

(A)

an amount equal to such excess health assets may be transferred in accordance with paragraph (3) from a health benefits account established under section 401(h),

(B)

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 subsection),

(C)

no amount shall be includible in the gross income of the employer maintaining the plan solely by reason of such transfer,

(D)

such transfer shall not be treated—

(i)

as an employer reversion for purposes of section 4980, or

(ii)

as a prohibited transaction for purposes of section 4975, and

(E)

the limitations of paragraph (4) shall apply to the employer.

(2) Excess health assets

For purposes of this subsection—

(A) In general

The term excess health assets means the amount by which the applicable assets with respect to a retiree health plan exceed an amount equal to 125 percent of the total liability of the employer for benefits for all participants under the retiree health plan, determined in accordance with applicable accounting standards.

(B) Limitation

In determining excess health assets, there shall not be taken into account—

(i)

amounts attributable to contributions (other than transfers under any other subsection of this section, or contributions made pursuant to a legally binding commitment entered into before January 1, 2024) made after December 31, 2023, to any health benefits account established under section 401(h) with respect to the retiree health plan, or

(ii)

any reduction in the liability of the employer described in subparagraph (A) due to a reduction in benefits pursuant to an amendment to the retiree health plan adopted after December 31, 2023.

(C) Terminating plans

In the case of a terminating pension plan which includes a health benefits account under section 401(h), all assets in such health benefits account shall be treated as excess health assets.

(D) Applicable assets

For purposes of subparagraph (A), the term applicable assets means all assets with respect to a retiree health benefits plan of an employer—

(i)

in a health benefits account established under section 401(h), or

(ii)

held by a voluntary employees’ beneficiary association (as defined in section 501(c)(9)).

(3) Transfers permitted

(A) In general

A transfer under this paragraph is a transfer—

(i)

of excess health assets, in the fiscal year immediately succeeding the fiscal year with respect to which such excess health assets are determined—

(I)

to the pension plan under which a health benefits account pursuant to section 401(h) was established, or

(II)

as provided in subparagraph (B)(ii), to a voluntary employees' beneficiary association (as defined in section 501(c)(9)),

(ii)

which does not contravene any other provision of law,

(iii)

with respect to which the use requirements of subparagraphs (B) and (C) and the minimum cost and benefit requirements of paragraph (4)(B) are met, and

(iv)

with respect to which the vesting requirements of subsection (c)(2) are met (determined by treating such transfer as a qualified transfer).

(B) Use for active benefits

(i) In general

Except as provided in clause (ii), a transfer of excess health assets for purposes of this subsection shall be used only to fund the pension plan.

(ii) Transfer to voluntary employees' beneficiary association

A transfer described in subparagraph (A)(i)(II) may be made only—

(I)

in the case of a defined benefit plan, to the extent a transfer to such plan as provided in subparagraph (A)(i)(I) would cause the plan to have a funding excess or increase the funding excess of the plan or, if the transfer is made in connection with the termination of the defined benefit plan, to the extent a transfer to such plan would exceed the amount necessary to satisfy the pension liabilities of the terminating plan, or

(II)

in the case of a pension plan which is not a defined benefit plan.

Any transfer under the preceding sentence to a voluntary employees' benefit association (as defined in section 501(c)(9)) shall be used only to pay any benefits permitted to be paid by such association to any members of such association (other than key employees not taken into account under subsection (e)(1)(E)).

(iii) Funding excess

For purposes of clause (ii), the term funding excess with respect to a plan year means the excess, if any, of—

(I)

the fair market value of the assets of the defined benefit plan (other than applicable assets, as defined in paragraph (2)(D)), over

(II)

110 percent of the present value of all pension benefits earned or accrued under the plan, as determined for purposes of determining the adjusted funding target attainment percentage pursuant to section 436(j).

(C) Only 1 transfer per year

No more than 1 transfer with respect to any plan may be made under subparagraph (A) during a taxable year. For purposes of the preceding sentence, any transfer portions of which are described in both subclauses (I) and (II) of subparagraph (A)(i) shall be treated as 1 transfer.

(4) Limitations on employer

(A) Deduction limitations

For purposes of this title, no deduction shall be allowed—

(i)

for the transfer of any amount under paragraph (3)(A),

(ii)

for benefits paid out of the assets (and income) so transferred, or

(iii)

for any amounts to which clause (ii) does not apply and which are paid for benefits described in paragraph (3)(B)(ii) for the taxable year to the extent such amounts are not greater than the excess (if any) of—

(I)

the amount determined under clause (i) (and income allocable thereto), over

(II)

the amount determined under clause (ii).

(B) Minimum cost and benefit requirements

Each plan or arrangement under which benefits funded as described in paragraph (3)(B)(ii) are provided shall provide that—

(i)

the applicable employer cost for each of the 5 taxable years beginning with the year of the transfer under paragraph (3)(A) shall not be materially less than the higher of the applicable employer costs for the year of the 2 taxable years immediately preceding the taxable year of such transfer, or

(ii)

benefits provided under the plan or arrangement shall not be materially reduced during the 5 year period described in clause (i).

For purposes of clause (i), the term applicable employer cost shall be determined under rules similar to the rules of subparagraphs (B) and (C) of subsection (c)(3), as applicable to the benefit being provided under such plan or arrangement.

(5) Coordination with sections 430 and 433

In the case of any assets transferred to a pension plan pursuant to paragraph (3), such assets shall, for purposes of this section and sections 430 and 433, be treated as assets in the plan.

(b) Conforming amendments

(c) Notice requirements

Section 101(e) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1021(e)) is amended by adding at the end the following new paragraph:

(4) Transfers of excess health assets

(A) Notice to participants

Not later than 60 days before the date of a transfer by an employee pension benefit plan of excess health assets pursuant to section 420(h)(1) of the Internal Revenue Code of 1986, the administrator of the plan shall provide notice (in such manner as the Secretary may prescribe) of such transfer to each participant and beneficiary eligible to receive benefits paid from the health benefits account under section 401(h) of such Code from which the transfer is to be made. Such notice shall include information with respect to the amount of excess health assets to be transferred, the plan or voluntary employees’ beneficiary association to which the transfer is to be made, and the amount of pension benefits of the participant which will be nonforfeitable immediately after the transfer.

(B) Notice to Secretaries, etc

Rules similar to the rules of paragraph (2) shall apply for purposes of this paragraph.

(d) Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2024.

(a) In general

Section 401 of the Internal Revenue Code of 1986 is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:

(p) Transfer of surplus defined benefit plan assets to defined contribution plan

(1) In general

(A) Transfer permitted

If an employer maintaining a defined benefit plan establishes or maintains a defined contribution plan which would be a qualified replacement plan (as defined in section 4980(d)(2)) with respect to the defined benefit plan but for the fact that the defined benefit plan is not terminated, subject to the requirements of paragraphs (3) and (4), any surplus assets of the defined benefit plan may be transferred to the defined contribution plan.

(B) Treatment of amount transferred

In the case of the transfer of any amount under subparagraph (A)—

(i)

such amount shall not be includible in the gross income of the employer,

(ii)

no deduction shall be allowable with respect to such transfer, and

(iii)

such transfer shall not be treated as an employer reversion for purposes of section 4980.

(2) Surplus assets

For purposes of this subsection, the term surplus assets means the excess of assets of the defined benefit plan over an amount equal to 110 percent of the value of plan liabilities used to determine premiums imposed under title IV of the Employee Retirement Income Security Act of 1974 for the plan year of the transfer.

(3) Vesting of benefits

The requirements of this paragraph are met if all benefits under the defined benefit plan become nonforfeitable in the same manner which would be required if the plan had terminated immediately before the 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).

(4) No reduction in benefits

The requirements of this paragraph are met if, during the period beginning with the year of the transfer and ending 4 plan years after the last plan year during which the replacement plan is funded by the transfer, no benefits under the replacement plan are reduced.

(b) Conforming amendments

(c) Notice requirements

Section 101(e) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1021(e)), as amended by section 101, is further amended by adding at the end the following new paragraph:

(5) Transfers of surplus defined benefit plan assets

Rules similar to the rules of paragraph (4) shall apply in the case of any transfer by an employee pension benefit plan of surplus defined benefit plan assets pursuant to section 401(p) of the Internal Revenue Code of 1986.

(d) Effective date

The amendments made by this section shall apply to plan years beginning after December 31, 2025.