Kodak breaks new ground in pension surplus strategy

Key takeaways

• More companies now have pension surpluses and are beginning to explore practical ways to use them.
• Kodak’s approach shows how a plan sponsor can use surplus assets while preserving benefits and strengthening the corporate balance sheet.
• Developing a clear governance process ensures surplus decisions align with fiduciary duty and long-term corporate goals.

Many U.S. companies now find their defined benefit (DB) plan in surplus and are exploring practical ways to use that excess funding. While emerging legislation may one day allow transfer from DB to defined contribution (DC) plans, some sponsors are already taking creative action. 

In 2023, IBM made headlines by reopening its well-funded frozen DB plan to offer new cash balance benefits to employees, while scaling back DC plan benefits. This sparked widespread discussion on how sponsors might use surplus assets strategically. Few have followed IBM’s exact model, but it has prompted many to rethink what’s possible.

As of Dec. 31, 2024, Kodak’s U.S. pension plan held $3.1 billion in assets against $2.2 billion in liabilities, resulting in a surplus near $1 billion. To prepare for next steps, the company began liquidating private assets in 2024 and strengthening its liability-hedging.

In early 2025, Kodak’s board approved the full plan termination—while simultaneously announcing a new plan that would offer existing and new employees “substantially the same” cash balance benefit as before. Kodak plans to settle liabilities through a mix of lump sum payouts and an annuity purchase through Met Life over the coming months.  

Currently the only way for a sponsor of an ERISA-qualified DB plan to reclaim surplus assets is to terminate the plan. However, doing so typically triggers a 50% excise tax, plus any applicable corporate tax.

Sponsors can reduce this excise tax by 20% by establishing a Qualified Replacement Plan (QRP) and allocating at least 25% of the surplus to it. This QRP may be either a DB or DC plan, but it must cover at least 95% of the active participants from the terminating plan.

Kodak appears to have taken this path—lowering its tax exposure and redirecting part of the surplus toward funding its replacement plan.

After funding the QRP and paying required taxes, Kodak intends to use the remaining proceeds to repay term debt, leaving the company in a much stronger financial position. This outcome strengthens Kodak’s balance sheet while maintaining participant benefits—a dual achievement highly desirable to pension sponsors.

This demonstrates how sponsors can operate within ERISA’s framework to both protect participant outcomes and unlock corporate value.  

Kodak’s move underscores the importance of having a structured process for evaluating pension surplus opportunities. Before acting, sponsors should develop a governance framework that balances fiduciary responsibility with corporate objectives.

1. First, assess the size and stability of pension surplus. The assets should fully hedge the interest rate risk of the liabilities, to the point where offloading surplus assets will not jeopardize the security of participants’ benefits or introduce unwelcome contribution or PBGC premium requirements.
2. Next, engage with the right advisory team—actuaries, ERISA counsel and investment advisors—to evaluate the implications of surplus use from a fiduciary lens and ensure the right implementation strategy is in place. Establish clear documentation of deliberations and approvals to demonstrate prudent decision making.
3. Finally, consider how the surplus strategy will impact asset allocation. Seek to hedge liabilities while also making adjustments to satisfy surplus growth objectives and maintain sustainable liquidity profiles.

A disciplined process does more than protect the plan fiduciaries—it safeguards participant benefits and opens up strategic possibilities for the plan sponsor.

Plan sponsors should challenge the notion that surplus assets lack value. While few may follow the approaches of IBM or Kodak directly, companies in surplus position should consider the strategic implications of excess assets—including how they affect asset allocation, plan design and long-term funding strategy.

Kodak’s move exemplifies the next stage in pension surplus utilization—a growing area of innovation among well-funded DB plans. We look forward to seeing how this trend continues to evolve.