IRS Publication 11433 – IRS Forms, Instructions, Pubs 2026 – In the complex world of employee benefit plans, ensuring compliance with Internal Revenue Code (IRC) regulations is crucial for maintaining tax-qualified status. IRS Publication 11433 serves as a key resource, providing detailed explanations on Section 401(h) for retiree medical benefits and Section 420 for transfers of excess pension assets. This article explores the publication’s content, qualification requirements, and recent developments, helping plan sponsors, administrators, and HR professionals navigate these provisions effectively.
Whether you’re managing a defined benefit pension plan or exploring options for funding retiree health benefits, understanding these sections can optimize your plan’s structure while avoiding qualification pitfalls. Let’s dive into the essentials.
What Is IRS Publication 11433?
IRS Publication 11433, titled “Employee Benefit Plans Explanation Number 13: Section 401(h) and Section 420 Determination of Qualification,” is a specialized guide released by the Internal Revenue Service. It focuses on the rules for incorporating retiree medical and life insurance benefits into pension plans and facilitating asset transfers. Originally revised in June 2021, this publication assists in evaluating plan provisions for compliance, particularly for applications aligning with the 2020 Required Amendments List as outlined in Notice 2020-83.
The document includes worksheets (Form 13069) and deficiency checksheets (Form 13070) to identify issues, though these are for reference only and not for submission. It emphasizes that while “Yes” answers on the worksheet generally indicate compliance, “No” answers require explanations and potential amendments. The publication’s principles may evolve with future regulations, underscoring the need for ongoing vigilance.
Overview of Section 401(h): Retiree Medical Benefits in Pension Plans
Section 401(h) allows defined benefit pension or annuity plans to include a separate account for funding medical benefits for retirees, their spouses, and dependents. This provision enables employers to provide tax-advantaged health coverage post-retirement, but strict rules apply to maintain plan qualification under Section 401(a).
Key Requirements for Qualification Under Section 401(h)
To qualify, plans must meet several criteria detailed in Publication 11433:
- Medical Benefits Specifications: The plan must explicitly outline available medical benefits (e.g., sickness, accident, hospitalization, and expenses) and how amounts are determined. No other benefits can be funded from the 401(h) account. Benefits are limited to retired employees—defined as those eligible for pension benefits or permanently disabled—and must not discriminate in favor of highly compensated employees.
- Subordination Limit: Contributions to the 401(h) account are capped at 25% of total plan contributions (excluding past service credits). This limit applies only to contributions after the plan’s adoption or effective date, with adjustments for life insurance protection.
- Separate Accounts: A dedicated account must be maintained for 401(h) contributions, purely for recordkeeping—no separate investments required. Additionally, separate accounts are needed for key employees (as defined in Section 416(i)), ensuring their benefits are paid solely from these segregated funds.
- Reasonable and Ascertainable Contributions: Contributions must be fixed without employer discretion, specifying benefits, periods, and coordination with other funding sources like welfare benefit funds.
- Miscellaneous Rules: Funds cannot be diverted for non-medical purposes until all liabilities are satisfied, with administrative expenses allowed. Remaining assets upon liability satisfaction revert to the employer. Forfeitures must reduce future employer contributions promptly.
Failure to adhere to these can jeopardize the plan’s tax-qualified status, as highlighted in the publication’s deficiency checksheet.
Applicable Life Insurance Benefits Under Section 401(h)
Post-July 6, 2012, plans can also fund group-term life insurance for retirees via a separate applicable life insurance account, excludable under Section 79. These benefits are retiree-only, with no employee or employer contributions—funding comes solely from Section 420 transfers. Separate accounts are required, and premiums for key employees are prohibited.
Section 420: Transfers of Excess Pension Assets
Section 420 permits qualified transfers of excess assets from defined benefit plans to 401(h) health accounts or applicable life insurance accounts, providing a mechanism to repurpose surplus funds for retiree benefits.
Qualification and Provisions for Transfers
- Nonforfeitability: Transfers make accrued pension benefits nonforfeitable, as if the plan terminated pre-transfer.
- Asset Reversion: Unused assets must revert if not used for qualified retiree liabilities (excluding key employees). For future or collectively bargained transfers, specific funding thresholds apply to prevent shortfalls.
Excess assets are defined as those exceeding 125% of plan liabilities, with transfers limited to supporting retiree health or life insurance needs.
Recent Updates and Changes to Sections 401(h) and 420
Tax laws evolve, and recent developments have impacted these provisions:
- SECURE 2.0 Act (2022): Extended Section 420 through 2032 (previously set to expire in 2025) and reduced the surplus threshold for transfers from 125% to 110% of liabilities, easing access for well-funded plans.
- Private Letter Rulings (2025): The IRS issued favorable rulings confirming that retirees whose benefits are annuitized remain “retired employees” eligible for 401(h) medical benefits, even post-annuitization in a “lift-out” scenario. These rulings clarify that such payments do not violate qualification rules, provided no Section 420 transfers are involved. However, uncertainty persists on using surplus for annuitized or lump-sum retirees under Section 420.
- Proposed Legislation (2025): The Strengthening Benefit Plans Act of 2025 (S. 2003) proposes amending Section 420 to allow transfers of surplus assets to defined contribution plans for nonelective contributions and repurposing trapped 401(h) assets for pension benefits or VEBA transfers. This bill aims to address “trapped” surplus issues and could raise federal revenue.
Plan sponsors should monitor these changes, as they could expand flexibility in managing overfunded plans.
How to Determine Qualification Using Publication 11433
The publication’s Worksheet 13 (Form 13069) guides evaluation with yes/no questions on plan provisions, covering medical benefits, subordination, accounts, and transfers. The Deficiency Checksheet 13 (Form 13070) lists potential issues, such as missing specifications or improper funding, with amendment requests where needed. Consulting Rev. Proc. 2021-4 and Appendix C is recommended for ruling requests.
For practical application, review your plan documents against these checklists. If requesting IRS determination, include details per Section 18 of Rev. Proc. 2021-4.
Conclusion: Optimizing Employee Benefit Plans with Sections 401(h) and 420
IRS Publication 11433 is an indispensable tool for ensuring employee benefit plans comply with Sections 401(h) and 420, enabling efficient funding of retiree health and life benefits. By adhering to these rules and staying abreast of updates like SECURE 2.0 and proposed bills, employers can enhance plan value while maintaining tax advantages.
For personalized advice, consult a tax professional or refer directly to the IRS website for the latest guidance. Proper implementation not only supports retiree well-being but also strengthens overall plan sustainability in today’s evolving regulatory landscape.