Funding of retiree health benefits

(a)

Collectively bargained transfer treated as a qualified transfer

(1)

In general

Section 420(b) of the Internal Revenue Code of 1986 (defining qualified transfer) is amended by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph:

(5)A collectively bargained transfer (as defined in subsection (e)(5)) shall be treated as a qualified transfer.

(2)

Conforming amendments

(A)Subparagraph (B) of section 420(b)(2) of such Code is amended by inserting or a collectively bargained transfer after paragraph (4). (B)Paragraph (3) of section 420(b) of such Code is amended to read as follows:

(3)

Limitation on amount transferred

(A)

In general

The amount of excess pension assets which may be transferred in a qualified transfer (other than a collectively bargained transfer) shall not exceed the amount which is reasonably estimated to be the amount the employer maintaining the plan will pay (whether directly or through reimbursement) out of such account during the taxable year of the transfer for qualified current retiree health liabilities. (B)

Exception for collectively bargained transfers

The amount of excess pension assets which may be transferred in a collectively bargained transfer shall not exceed the amount which is reasonably estimated, in accordance with the provisions of the collective bargaining agreement and generally accepted accounting principles, to be the amount the employer maintaining the plan will pay (whether directly or through reimbursement) out of such account during the collectively bargained cost maintenance period for collectively bargained retiree health liabilities.

(C)Section 420(b)(6) of such Code, as redesignated by paragraph (1), is amended by inserting (other than a collectively bargained transfer) after No transfer. (b)

Requirements of plans making collectively bargained transfers

(1)

In general

Paragraph (1) of section 420(c) of the Internal Revenue Code of 1986 (relating to requirements of plan transferring assets) is amended to read as follows:

(1)

Use of transferred assets

(A)

In general

Except in the case of a collectively bargained transfer, any assets transferred to a health benefits account in a qualified transfer (and any income allocable thereto) shall be used only to pay qualified current retiree health liabilities (other than liabilities of key employees not taken into account under subsection (e)(1)(D)) for the taxable year of the transfer (whether directly or through reimbursement). (B)

Collectively bargained transfer

Any assets transferred to a health benefits account in a collectively bargained transfer (and any income allocable thereto) shall be used only to pay collectively bargained retiree health liabilities (other than liabilities of key employees not taken into account under subsection (e)(6)(D)) for the taxable year of the transfer or for any subsequent taxable year during the collectively bargained cost maintenance period (whether directly or through reimbursement). (C)

Amounts not used to pay for health benefits

(i)

In general

Any assets transferred to a health benefits account in a qualified transfer (and any income allocable thereto) which are not used as provided in subparagraph (A) (in the case of a qualified transfer other than a collectively bargained transfer) or cannot be used as provided in subparagraph (B) (in the case of a collectively bargained transfer) shall be transferred out of the account to the transferor plan. (ii)

Tax treatment of amounts

Any amount transferred out of an account under clause (i)— (I)shall not be includible in the gross income of the employer, but (II)shall be treated as an employer reversion for purposes of section 4980 (without regard to subsection (d) thereof). (D)

Ordering rule

For purposes of this section, any amount paid out of a health benefits account shall be treated as paid first out of the assets and income described in subparagraph (A) (in the case of a qualified transfer other than a collectively bargained transfer) or subparagraph (B) (in the case of a collectively bargained transfer).

(2)

Conforming amendments

(A)Subparagraph (A) of section 420(c)(3) of such Code is amended to read as follows:

(A)

In general

The requirements of this paragraph are met if— (i)except as provided in clause (ii), each group health plan or arrangement under which applicable health benefits are provided provides that the applicable employer cost for each taxable year during the cost maintenance period shall not be less than the higher of the applicable employer costs for each of the 2 taxable years immediately preceding the taxable year of the qualified transfer, and (ii)in the case of a collectively bargained transfer, each collectively bargained group health plan under which collectively bargained health benefits are provided provides that the collectively bargained employer cost for each taxable year during the collectively bargained cost maintenance period shall not be less than the amount specified by the collective bargaining agreement.

(B)Section 420(c)(3) of such Code is amended by redesignating subparagraphs (C), (D), and (E) as subparagraphs (D), (E), and (F), respectively, and by inserting after subparagraph (B) the following new subparagraph:

(C)

Collectively bargained employer cost

For purposes of this paragraph, the term collectively bargained employer cost means the average cost per covered individual of providing collectively bargained retiree health benefits as determined in accordance with the applicable collective bargaining agreement. Such agreement may provide for an appropriate reduction in the collectively bargained employer cost to take into account any portion of the collectively bargained retiree health benefits that is provided or financed by a government program or other source.

(C)Subparagraph (E) of section 420(c)(3) of such Code (as redesignated by subparagraph (B)) is amended to read as follows:

(E)

Maintenance period

For purposes of this paragraph— (i)

Cost maintenance period

The term cost maintenance period means the period of 5 taxable years beginning with the taxable year in which the qualified transfer occurs. If a taxable year is in 2 or more overlapping cost maintenance periods, this paragraph shall be applied by taking into account the highest applicable employer cost required to be provided under subparagraph (A)(i) for such taxable year. (ii)

Collectively bargained cost maintenance period

The term collectively bargained cost maintenance period means, with respect to each covered retiree and his covered spouse and dependents, the shorter of— (I)the remaining lifetime of such covered retiree and his covered spouse and dependents, or (II)the period of coverage provided by the collectively bargained health plan (determined as of the date of the collectively bargained transfer) with respect to such covered retiree and his covered spouse and dependents.

(c)

Limitations on employer

Subsection (d) of section 420 of the Internal Revenue Code of 1986 is amended to read as follows:

(d)

Limitations on employer

For purposes of this title— (1)

Deduction limitations

No deduction shall be allowed— (A)for the transfer of any amount to a health benefits account in a qualified transfer (or any retransfer to the plan under subsection (c)(1)(C)), (B)for qualified current retiree health liabilities or collectively bargained retiree health liabilities paid out of the assets (and income) described in subsection (c)(1), or (C)except in the case of a collectively bargained transfer, for any amounts to which subparagraph (B) does not apply and which are paid for qualified current retiree health liabilities for the taxable year to the extent such amounts are not greater than the excess (if any) of— (i)the amount determined under subparagraph (A) (and income allocable thereto), over (ii)the amount determined under subparagraph (B). (2)

Other limitations

(A)

No contributions allowed

Except as provided in subparagraph (B), an employer may not contribute after December 31, 1990, any amount to a health benefits account or welfare benefit fund (as defined in section 419(e)(1)) with respect to qualified current retiree health liabilities for which transferred assets are required to be used under subsection (c)(1)(A). (B)

Exception

An employer may contribute an amount to a health benefits account or welfare benefit fund (as defined in section 419(e)(1)) with respect to collectively bargained retiree health liabilities for which transferred assets are required to be used under subsection (c)(1)(B), and the deductibility of any such contribution shall be governed by the limits applicable to the deductibility of contributions to a welfare benefit fund under a collective bargaining agreement (as determined under section 419A(f)(5)(A)) without regard to whether such contributions are made to a health benefits account or welfare benefit fund and without regard to the provisions of section 404 or the other provisions of this section.

(d)

Definitions

Section 420(e) of the Internal Revenue Code of 1986 (relating to definition and special rules) is amended by adding at the end the following new paragraphs:

(5)

Collectively bargained transfer

The term collectively bargained transfer means a transfer— (A)of excess pension assets to a health benefits account which is part of such plan in a taxable year beginning after December 31, 2004, (B)which does not contravene any other provision of law, (C)with respect to which are met in connection with the plan— (i)the use requirements of subsection (c)(1), (ii)the vesting requirements of subsection (c)(2), and (iii)the minimum cost requirements of subsection (c)(3), (D)which is made in accordance with a collective bargaining agreement, and (E)which, before the transfer, the employer designates, in a written notice delivered to each employee organization that is a party to the collective bargaining agreement, as a collectively bargained transfer in accordance with this section. (6)

Collectively bargained retiree health liabilities

(A)

In general

The term collectively bargained retiree health liabilities means the present value, as of the beginning of a taxable year and determined in accordance with the applicable collective bargaining agreement, of all collectively bargained health benefits (including administrative expenses) for such taxable year and all subsequent taxable years during the collectively bargained cost maintenance period. (B)

Reduction for amounts previously set aside

The amount determined under subparagraph (A) shall be reduced by the value (as of the close of the plan year preceding the year of the collectively bargained transfer) of the assets in all health benefits accounts or welfare benefit funds (as defined in section 419(e)(1)) set aside to pay for the collectively bargained retiree health liabilities. (C)

Key employees excluded

If an employee is a key employee (within the meaning of section 416(I)(1)) with respect to any plan year ending in a taxable year, such employee shall not be taken into account in computing collectively bargained retiree health liabilities for such taxable year or in calculating collectively bargained employer cost under subsection (c)(3)(C). (7)

Collectively bargained health benefits

The term collectively bargained health benefits means health benefits or coverage which are provided to— (A)retired employees who, immediately before the collectively bargained transfer, are entitled to receive such benefits upon retirement and who are entitled to pension benefits under the plan, and their spouses and dependents, and (B)if specified by the provisions of the collective bargaining agreement governing the collectively bargained transfer, active employees who, following their retirement, are entitled to receive such benefits and who are entitled to pension benefits under the plan, and their spouses and dependents. (8)

Collectively bargained health plan

The term collectively bargained health plan means a group health plan or arrangement for retired employees and their spouses and dependents that is maintained pursuant to 1 or more collective bargaining agreements.

(e)

Conforming amendments

(1)The last sentence of section 401(h) of the Internal Revenue Code of 1986 is amended by inserting (other than contributions with respect to collectively bargained retiree health liabilities within the meaning of section 420(e)(6)) after medical benefits. (2)Section 101(e)(3) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by striking Pension Funding Equity Act of 2004 and inserting Retiree Health Benefits Act of 2005. (3)Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is amended by striking Pension Funding Equity Act of 2004 and inserting Retiree Health Benefits Act of 2005. (4)Paragraph (13) of section 408(b) of such Act (29 U.S.C. 1108(b)) is amended— (A)by striking before January 1, 2014 and inserting in accordance with section 420 of the Internal Revenue Code of 1986 (as in effect on the date of the enactment of the Retiree Health Benefits Act of 2005), and (B)by striking Pension Funding Equity Act of 2004 and inserting Retiree Health Benefits Act of 2005. (f)

Effective date

The amendments made by this section shall apply to years beginning after December 31, 2004.