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Transfer of assets using IRC section 420

Guest David G

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Guest David G

What are the pros and cons of a governmental employer utilizing IRC section 420 to transfer assets out of a defined benefit plan to fund retiree health insurance costs? Traditionally employer has funded health costs on a pay as you go basis and subsidized some retiree health costs. Employer wants to begin subsidizing the costs of survivors of annuitants and is looking at IRC section 420 as a possible funding mechanism. Annuitants and their dependents currently receive some employer subsidy. Has any one’s clients attempted such a transfer. What was the experience like? Are there difficult administrative burdens? Is the immediate vesting requirement under IRC section 420 expensive actuarially? If this is generally a win-win situation, why hasn’t there been a rush for employers to use? Are there any good materials available either in print or on the web?

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