S 2003119th CongressIntroduced

Strengthening Benefit Plans Act of 2025

Introduced: Jun 10, 2025

Financial ServicesLabor & Employment

Standard Summary

Comprehensive overview in 1-2 paragraphs

The Strengthening Benefit Plans Act of 2025 would give employers broader latitude to redeploy large pool of existing plan assets to fund current (active) employee benefits. Specifically, it creates new, transfer-based mechanisms for using excess assets in retiree health accounts (401(h)) to support active employee benefits, and for moving surplus assets from defined benefit (DB) plans into defined contribution (DC) plans when a “qualified replacement plan” exists. The bill also adds coordination provisions across tax and ERISA law, requires participant notice before transfers, and sets new effective dates. In short, the bill aims to improve funding flexibility for benefit plans while imposing certain use restrictions and protection requirements for participants.

Key Points

1Transfer of excess health assets (401(h)) to active benefits
2- Allows a pension plan with excess health assets to transfer those assets in a fiscal year to fund active employee benefits, either back into the pension plan or to a VEBA (501(c)(9)).
3- Excess health assets are defined as assets in a retiree health plan above 125% of the employer’s total liability for retiree benefits.
4- Transfers must meet use requirements, minimum cost/benefit limits, vesting rules, and one-transfer-per-year limits; transfers are not taxable events to the employer and are not treated as employer reversion or prohibited transactions.
5- Transfers to a VEBA are limited to funding benefits that the VEBA can lawfully provide to plan members (and not to key employees in certain cases); the plan’s costs must not materially drop over a 5-year window.
6- The bill requires notice to participants at least 60 days before a transfer and similar notification to relevant officials.
7Transfers of surplus defined benefit plan assets to a defined contribution plan (401(p))
8- Allows an employer with a DB plan to transfer surplus assets to a defined contribution plan that would be a qualified replacement plan if the DB plan were terminated, provided the DB plan remains in place but not terminated.
9- Surplus is defined as assets above 110% of the value of plan liabilities used to determine ERISA Title IV premiums for the plan year.
10- Key requirements: benefits in the DB plan must vest as if the plan terminated; no reduction in benefits in the replacement plan for 4 years after the transfer; the transfer is not taxable to the employer, and no deduction is allowed for the transfer.
11- ERISA/IRS coordination and notice rules are added; plan administrators must provide similar notices as with 401(h) transfers.
12Conforming amendments and coordination
13- Adds cross-reference language to ensure transfers under 420(h) and 401(p) are treated consistently within the code and ERISA.
14- Extends coordination in related plan provisions (430, 433) to treat transferred assets as plan assets for funding and valuation purposes.
15- Adjusts related ERISA provisions (e.g., 404(c)-like consequences and 408(b)(13) notices) to reflect the new transfer authority.
16Effective dates
17- Transfers of excess health assets (401(h)) apply to taxable years beginning after December 31, 2024.
18- Transfers of surplus DB assets to a DC plan (401(p)) apply to plan years beginning after December 31, 2025.
19Overall purpose
20- The bill aims to strengthen active employee funding by unlocking existing plan assets, while safeguarding participant interests through restrictions, vesting protections, and notice requirements.

Impact Areas

Primary group/area affected- Employers sponsoring pension plans, especially those with retiree health (401(h)) accounts and defined benefit plans; plan sponsors seeking to fund current employee benefits more efficiently.Secondary group/area affected- Active employees (participants whose benefits could be funded or stabilized), retirees (whose health benefits under 401(h) could be shifted), and plan fiduciaries/administrators responsible for implementing transfers and notices.Additional impacts- Voluntary employees’ beneficiary associations (VEBA) could receive transfers, with limits on how funds may be used.- Tax and ERISA compliance processes would become more complex (new definitions, notices, and cross-references across IRC and ERISA provisions).- Potential policy implications, such as reduced retiree health funding in favor of active-benefit funding, increased plan administration costs, and the need for clear communications to participants.401(h): A health benefits account within a pension plan that funds retiree medical benefits.VEBA (501(c)(9) organization): A tax-exempt fund/association that provides benefits to members (often used to fund retiree health or other benefits).Defined Benefit (DB) plan: A pension plan that promises specific retirement benefits, typically based on salary and years of service.Defined Contribution (DC) plan: A plan (like a 401(k)) that provides individual accounts and benefits depend on investment performance.Surplus assets (DB to DC transfer): Assets in a DB plan that exceed a defined threshold relative to liabilities, eligible to be moved to a DC plan under the bill.Funding excess: A metric used to assess whether a DB plan has more assets than needed to cover promised benefits, used here to determine surplus.Reversion/Prohibited transaction: Tax and ERISA concepts related to how plan assets are treated when transferred or used; the bill provides protections to avoid negative tax or fiduciary consequences.

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