This act allows employers to transfer surplus assets from retiree health accounts and defined benefit pension plans into other benefit accounts, subject to specific funding and notice requirements.
Tim Scott
Senator
SC
The Strengthening Benefit Plans Act of 2025 allows employers to transfer surplus assets from overfunded retiree health accounts or defined benefit pension plans into other employee benefit funds, like 401(k) plans or VEBAs. This aims to provide flexibility for employers managing excess funds while imposing strict requirements to protect employee vesting and future benefit levels. The bill establishes specific calculations for defining "excess assets" and mandates advance notice to participants before any transfer occurs.
Pension Surplus Sweep: New Bill Lets Companies Move Extra Retirement Cash to 401(k)s Starting in 2026
The aptly named Strengthening Benefit Plans Act of 2025 is less about strengthening benefits and more about unlocking large pools of corporate cash currently sitting in overfunded retirement accounts. This bill creates two major pathways for companies to move surplus money from one type of employee benefit account to another without triggering massive tax penalties—a move that fundamentally changes how companies manage their long-term benefit liabilities.
Title I: The Great Retiree Health Shuffle
Title I deals with retiree health benefits, specifically money sitting in accounts like 401(h) or certain Voluntary Employees' Beneficiary Associations (VEBAs). These accounts are set aside to pay for future retiree health costs. Under the new rules (effective for tax years starting after December 31, 2024), an employer can transfer "excess health assets"—defined as anything over 125% of the company’s estimated liability for those benefits—into the main defined benefit pension fund or a VEBA. Crucially, this transfer is allowed even if the company is terminating its pension plan.
Think of it this way: If your company set aside $100 million for retiree health, but only needs $80 million to cover 100% of the liability, they can move a chunk of that extra $20 million. This gives companies immediate access to capital that was previously locked away. For the employee, the fine print matters: If the money moves to a VEBA, the company has to promise that the cost of contributions or the level of benefits won’t drop significantly for five years after the transfer. This is the bill’s attempt to protect the benefits, but the term “significantly cut” is vague enough to leave room for interpretation. Also, if a transfer is planned, the company must notify affected participants at least 60 days in advance, detailing how much money is moving and where it’s going.
Title II: From Pension Promises to 401(k) Cash
Title II, effective for plan years starting after December 31, 2025, is arguably the bigger change. It allows companies with traditional defined benefit (DB) pension plans—the old-school promises of a fixed income in retirement—to take "surplus assets" and move them directly into a defined contribution (DC) plan, like a 401(k). This is a big deal because normally, taking money out of a DB plan triggers a massive 50% tax penalty (called an employer reversion tax).
Under this new rule, the company can only touch the money that exceeds 110% of the plan’s funding obligations. So, if your pension plan is 120% funded, they can tap into the 10% above the 110% threshold. The trade-off for employees is immediate and full vesting: if your company makes this move, every benefit you’ve earned in the DB plan becomes 100% nonforfeitable, as if the plan terminated right then. However, this transfer essentially allows companies to shift assets from a guaranteed benefit structure (the pension) to a market-risk structure (the 401(k)) without the usual tax consequences.
The Real-World Impact: Liquidity vs. Long-Term Security
This legislation is a clear win for corporations that have been sitting on overfunded retirement accounts, giving them a tax-advantaged path to access cash. For employees, the impact is mixed. On one hand, the full vesting requirement in Title II is a definite plus for workers in DB plans. On the other hand, the core purpose of those surplus funds—whether for retiree health or pension promises—was long-term security. By allowing companies to sweep this cash into other accounts, the bill potentially weakens the dedicated funding streams that were intended to cover future liabilities, particularly for retirees whose health benefits might be shifted into a structure (the VEBA) that could be less robust in the long run. While the bill mandates stability promises and notice requirements, it represents a significant structural change in how employers can manage and eventually utilize what was once considered dedicated retirement security funding.