Plan Reversions and Transfers

Background

Under certain limited conditions employers can reclaim excess assets from retirement plans using two methods: reversions of earlier employer contributions and transfers. The Omnibus Budget Reconciliation Act of 1990 limited the amount of the funds that may revert, subject to an excise tax, from a retirement plan to the employer’s own accounts and permits, and required that the reverted funds be devoted entirely to paying for current employer-provided health benefits. The payments must be made for specified reasons, such as maintaining employer health benefits for five years.

The PPA permitted the transfer of excess plan assets to pay retiree health liabilities for not less than two and not more than ten years. The diversion of funds may jeopardize a plan’s financial soundness and open the door to further and less meritorious fund transfer proposals.

Plan Reversions and Transfers: Policy

Curtailing reversions and transfers

In this policy: Federal

AARP strongly supports current limits and penalty taxes on employer reversions.

AARP generally opposes measures that would permit the transfer of retirement plan funds for other purposes. Such transfers undermine the Employee Retirement Income Security Act’s (ERISA) “exclusive benefit” rule and place at needless risk the benefits of workers and retirees and their families.