The Pension Protection Act of 2006 will allow multiemployer plans to transfer excess assets into the plan paying for current retiree health care.
Generally employers may not withdraw assets from a plan and such a transfer would constitute a prohibited transaction imposing strict penalties on the plan sponsor. The current law provides an exception to the general rule by allowing regular single employer plans that are overfunded to transfer some of excess assets into the company health plan. The new law proposes extending the rule to allow multiemployer plans to do the same. This new rule will be used by union plan administrators who have invested plan funds in such a way that the plan holds more money than is required by the funding rules.
A multiemployer plan will be permitted to transfer assets in excess of 125% of the plan’s current liability into the current retiree health plan. The amount of assets transferred to the health plan must be used to cover current retiree health care costs for the same taxable year in which the transfer is made.
The new law will not change the expected benefit workers will receive under their multiemployer defined benefit plans, but allowing such transfers could put the plan at greater risk in the event of a downturn in the plan’s investments.
Read Section 842 in The Pension Protection Act of 2006 Public Law 109-280< Back