A major benefit consulting firm recently announced that the funded status of the largest corporate pension plans significantly increased in 2025. See WTW (2026, Jan. 5). Funded Status of largest US corporate pension plans now well over 100% for year-end 2025 [WTW Press Release]. Having examined plan data from 349 Fortune 1000 companies with DB plans, the announcement notes that the funding ratios of these large calendar year plans increased from 101% at the end of 2024 to an estimated104% at the end of 2025, while the associated pension obligations slightly declined. Propelled by a strong average investment return of 11% and relatively stable interest rates, the analysis found that year-end pension plan assets increased to $1.16 trillion in 2025. The study notes, however, that even with this improved aggregated funding status, there is still a divide between well-funded and underfunded plans. 

Despite the increased number of large overfunded pension plans, there is no simple way for employers to make efficient use of surplus pension assets, and the current options are limited and complex. Some employers have made Code section 420 transfers to a 401(h) retiree health account in their defined benefit plan to free up corporate cash for other uses. Other employers have used a spinoff-termination strategy involving a “qualified replacement plan” where some (but not all) surplus assets are transferred to a new spun-off plan which is then terminated with the surplus used to fund nonelective employer contributions in a defined contribution plan. This strategy is designed to reduce or eliminate the excise tax on pension reversions.           

Transactions such as those noted here often involve areas of uncertainty and, therefore, it was once standard practice for plan sponsors to seek private letter rulings (PLRs) related to these transactions. Unfortunately, over time the IRS has taken “no rule” positions regarding various types of transactions, which means the IRS will not consider or issue PLRs on these matters.  

This latest IRS publication of “no ruling” areas (Rev. Proc. 2026-3, 2026-1 IRB 143) further closes off opportunities to seek clarity through the private letter ruling process. The latest iteration actually adds section 420 transactions as a “no rule” area (sec. 3.01(74)), including where the employer is asking for guidance on the use of the 401(h) account assets that may have involved a section 420 transfer. And Rev. Proc. 2026-3 continues the IRS “no rule" position on spinoff-termination transactions of the type described above (where less than all of the surplus assets are being spun off). 

In light of this latest IRS position on “no ruling” areas, employers who seek to use surplus pension assets should act strategically and work with their legal advisers and consultants to maximize efficiencies and minimize risks in using such assets. 

For background information on IRS's evolving position on the use of overfunded pension assets and “no ruling” areas, please see Surplus Plan Assets Continue to Puzzle IRS and Frustrate Plan Sponsors | Groom Law Group and SECURE 2.0 Creates New Opportunity to Use Surplus Pension Assets for Retiree Welfare Benefits | Groom Law Group.