CAA Benefits Alert: Pension Retiree Medical Transfers Relief In The 2021 Consolidated Appropriations Act – Employment and HR

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The Consolidated Appropriations Act, 2021 (Act), includes relief
for sponsors of overfunded defined-benefit pension plans who make
qualified transfers to fund a portion of their retiree medical
benefit liabilities.

The relief contained in the Act has a somewhat limited audience,
as there are not many overfunded defined-benefit pension plans
these days. Of those few overfunded plans, not many have opted to
make an Internal Revenue Code (Code) Section 420 transfer of
overfunded amounts to a retiree health benefits account and/or
retiree life insurance account. Of those few who have made or will
make Section 420 transfers, even fewer elect to make a
“qualified future transfer” under Code Section

However, for those plans that do make Section 420(f) qualified
future transfers, the Act includes relief that can be viewed as a
“get out of jail free card” for plans that are
experiencing financial hardship during this time and want to
shorten the set transfer period of existing qualified future

Specifically, the Act provides the following relief:

  • Allows plan sponsors who have
    existing qualified future transfers from the sponsor’s pension
    plan to a retiree health benefits account and/or retiree life
    insurance account to make an election prior to December 31, 2021,
    to end the transfer period for any existing qualified future
    transfer. The plan sponsor specifies the effective date of the
    election, which can be effective as of any taxable year beginning
    after the date of the election.
  • Pension plans making this election
    are subject to the following requirements:

    • Minimum cost requirements continue to
      apply to the qualified future transfer as if the transfer period
      had not been shortened.
    • The pension plan must remain at least
      100% funded for the duration of the original transfer period.
    • The pension plan has the following
      specified funding targets for the first five years after the
      original transfer period (this ceases to apply if the plan becomes
      120% funded):

      • Year 1: 104%
      • Year 2: 108%
      • Year 3: 112%
      • Year 4: 116%
      • Year 5: 120%
    • Any amounts remaining in the retiree
      health benefits account and/or retiree life insurance account at
      the end of the shortened transfer period (“remaining
      transferred amounts”) must be returned to the pension plan
      within a reasonable period of time. The plan sponsor will be
      subject to a tax under Code Section 4980 on an employer reversion
      in the amount of the remaining transferred amounts unless the plan
      sponsor transfers back to the retiree health benefits account
      and/or retiree life insurance account, as applicable, an amount
      equivalent to the remaining transferred amounts before the end of
      the five-year period beginning after the original transfer period.
      However, the increased tax under Code Section 4980(d) will not
      apply even if such an amount is not transferred back to the retiree
      health benefits account and/or retiree life insurance account.

This article is part of our “Unpacking the Employee
Benefits Provisions in the Consolidated Appropriations Act,
2021” series. Click 
here for other CAA-related articles. Please contact a
member of the Winston & Strawn Employee Benefits and Executive
Compensation Practice Group or your Winston relationship attorney
for further information.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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