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.

IBM opened the door

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.

Kodak follows with bold approach

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.

Why terminate then open a new plan?

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.

Reinvesting in the business

After funding the QRP and paying required taxes, Kodak intends to use the remaining proceeds to repay term debt, leaving the company virtually debt free. 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.

Building a framework for responsible surplus utilization

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.

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.
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.
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.

Investor implications

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.

Important information pertaining to the hypothetical example: Past performance does not predict future returns. Return level is proportionately scaled in line with cash level to be overlaid. Source: Russell Investments. Assumptions: Average cash level 1.0%, 10-year history from 12/31/2023, gross of fees. Opportunity cost from not securitizing cash varies by asset allocation and time period, and is represented by horizontal bars as marked within the chart legend. Target asset allocation used: 0% cash, 74% MSCI World, 26% Global Aggregate (GBP Hedged). For illustrative purposes only. Does not represent any actual investment. Indexes are unmanaged and cannot be invested in directly. Performance benefit (net) of overlaying cash by last 5 individual calendar year is as follows: 2023:20 bps, 2022:-17bps, 2021:16bps, 2020:14bps, 2019:23bps.

These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.

This material is not an offer, solicitation or recommendation to purchase any security.

Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.

Diversification and strategic asset allocation do not assure a profit or guarantee against loss in declining markets.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

The Russell Investments logo is a trademark and service mark of Russell Investments

The information, analyses and opinions set forth herein are intended to serve as general information only and should not be relied upon by any individual or entity as advice or recommendations specific to that individual entity. Anyone using this material should consult with their own attorney, accountant, financial or tax adviser or consultants on whom they rely for investment advice specific to their own circumstances.

Products and services described on this website are intended for United States residents only. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained on this website should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Persons outside the United States may find more information about products and services available within their jurisdictions by going to Russell Investments' Worldwide site.

Russell Investments is committed to ensuring digital accessibility for people with disabilities. We are continually improving the user experience for everyone, and applying the relevant accessibility standards.

Russell Investments' ownership is composed of a majority stake held by funds managed by TA Associates Management, L.P., with a significant minority stake held by funds managed by Reverence Capital Partners, L.P. Certain of Russell Investments' employees and Hamilton Lane Advisors, LLC also hold minority, non-controlling, ownership stakes.

Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the "FTSE RUSSELL" brand.

© Russell Investments Group, LLC. 1995-2025. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.