NUA Strategy for Pharmaceutical and Healthcare Employees (Eli Lilly, J&J, Pfizer, Merck, Abbott/AbbVie)

Long-tenure employees at major pharmaceutical and healthcare companies are among the most compelling NUA candidates in the workforce. A 30-year career at Eli Lilly, where employer match contributions made during the 2007–2015 patent-cliff era at $35–$65/share now sit against a current price above $1,200/share, can produce an appreciation ratio of 18:1 to 30:1 — generating well over $200,000 in potential lifetime federal tax savings from a single NUA election. J&J, Abbott, Merck, and Pfizer employees often have similarly attractive positions after decades of 401(k) employer match accumulation. But the pharmaceutical sector has four complications that catch generalist advisors off guard: corporate spinoffs and split-offs that split employer stock eligibility (J&J/Kenvue, Abbott/AbbVie), taxable mergers that reset cost basis at a higher floor (Pfizer's acquisition of Wyeth), employer identity traps where the wrong assumption about which shares qualify permanently disqualifies the election, and the fact that most major pharma hub states — New Jersey, Indiana, Illinois, Connecticut, and Pennsylvania — tax long-term capital gains as ordinary income, meaning pharma employees capture federal-only NUA benefit regardless of where they work. The federal savings are real and substantial either way; the state factor simply doesn't add to them.

Why pharmaceutical employees are NUA candidates

Several structural features of long-tenure pharmaceutical and healthcare careers produce favorable NUA conditions:

• 30-year careers with employer match in company stock. Research scientists, clinical managers, pharmaceutical sales directors, manufacturing employees, and corporate staff at major pharma companies routinely spend 25–35 years at a single employer. Employer match contributions made in the 1990s and early 2000s — and especially during the 2009–2015 period when several major pharma stocks were pressured by patent cliffs — carry cost basis well below current market prices.
• Extraordinary appreciation at select companies. Eli Lilly's transformation from a patent-cliff era stock at $35–$45/share (2009–2012) to a GLP-1 drug powerhouse above $1,200/share (2026) produces appreciation ratios that are rare in any sector — 20:1 to 35:1 on contributions made during the trough. AbbVie (spun off at ~$20/share in 2013, now above $165/share) represents 8:1+ ratios for AbbVie employees. UnitedHealth Group has similarly produced strong long-term appreciation for healthcare sector employees.
• DB pensions at major companies create the bracket-stacking variable. Many pharma companies maintain or maintained defined benefit pensions for employees hired before certain cutoff dates. J&J, Pfizer, Merck, and Abbott all have or have had active pension plans. Pension income fills ordinary income brackets before the cost basis distribution hits — in some cases pushing the cost basis into a higher bracket, in others (with careful timing) leaving room at lower rates.
• Plan design typically includes employer stock investment options. The major pharma 401(k) plans have historically offered employer stock as an investment option, with matching contributions sometimes made in company stock. This creates the low-basis positions that drive NUA savings. Verify your lot-level basis before assuming the ratio — plan document changes and mandatory diversification rights (§401(a)(35), 3-year service threshold) may have reduced concentration.

Major pharma 401(k) plans

Plan structure, recordkeeper, and employer stock options change. Verify with your current HR benefits portal or Summary Plan Description before making any distribution decisions. The in-kind distribution availability must be confirmed in writing from the plan administrator for your specific plan document.

Eli Lilly: the extraordinary appreciation case

Of the major pharmaceutical employers, Eli Lilly presents the most dramatic NUA opportunity in the industry — driven by one of the most remarkable stock price trajectories in modern market history. Lilly's core pharmaceutical business was under severe pressure from patent expirations in the 2009–2016 timeframe, with LLY stock trading in the $35–$65 range as investors discounted the loss of Zyprexa, Cymbalta, and Strattera revenues. Employer match contributions made to the Lilly 401(k) during this period — and into the recovery years 2017–2022 — now carry a cost basis far below the current price above $1,200/share, driven by the extraordinary commercial success of Mounjaro (tirzepatide) and Zepbound in the GLP-1 therapeutic class.¹

What Lilly's appreciation history means for NUA ratios

• 1990s–2001 contributions (~$60–$90/share basis): Lilly traded at elevated valuations during the peak pharmaceutical earnings era. Employees who received match contributions during this period have a higher cost basis — the NUA ratio is more modest, though still often 10:1 to 15:1 against current prices.
• 2009–2016 contributions (~$35–$65/share basis): This is the key window for compelling NUA ratios at Lilly. A 30-year Lilly employee who received substantial employer match contributions during the patent-cliff trough holds shares at basis levels that represent 18:1 to 35:1 appreciation against current prices. These are among the highest NUA ratios observable in any 401(k) employer stock position today.
• 2017–2022 contributions (~$80–$250/share basis): More recent contributions carry a much higher basis, producing more modest ratios of 5:1 to 8:1. The blended ratio across all lots depends on how much of the employee's match was concentrated in the low-basis years.

Lilly's plan mechanics (Alight)

The Lilly 401(k) Savings Plan is administered by Alight Solutions. In-kind LLY stock distributions for NUA require calling Alight's Lilly-specific benefit line and requesting an in-kind transfer of shares to a taxable brokerage account. Self-service online distribution tools typically default to cash liquidation — do not initiate a distribution through the online portal without first speaking with an Alight representative who confirms the in-kind option.²

For detailed Alight mechanics — the call process, December 31 same-year lump-sum deadline, and 1099-R Box 6 verification — see Alight NUA Distribution Mechanics.

Lilly's pension plan status has evolved; some employees have active pension benefits while others have frozen or enhanced 401(k) benefits instead. Verify your specific pension benefit status with Lilly HR before modeling the NUA distribution-year income, since pension income in retirement reduces the 0% and 15% LTCG bracket headroom available for post-distribution tranche selling.

Johnson & Johnson: the Kenvue split-off trap

J&J's separation from its consumer health business created a specific NUA eligibility risk that is not well understood by advisors who haven't tracked the transaction carefully. In May 2023, J&J completed the IPO of Kenvue Inc. (NYSE: KVUE), which holds the consumer brands (Tylenol, Band-Aid, Neutrogena, Listerine). In August 2023, J&J conducted a split-off via exchange offer with a final exchange ratio of 8.0324 Kenvue shares per J&J share tendered. J&J shareholders who participated received Kenvue shares in exchange for tendering their J&J shares. J&J then completed a clean-up distribution of remaining Kenvue shares in October 2023.³

The NUA eligibility question for J&J employees

As a result of these transactions, many J&J employees now hold both JNJ shares and KVUE shares inside their 401(k) plan. The NUA eligibility test under IRC §402(e)(4) requires that the stock being distributed in-kind be "employer securities" — meaning stock of the employer (or a member of the same controlled group). J&J employees' employer is Johnson & Johnson. Kenvue is a separately traded, independent company after the split-off.

Practical result:

• JNJ shares in the 401(k): Employer securities. Eligible for NUA election. ✓
• KVUE shares in the 401(k): NOT employer securities for J&J employees. Do NOT qualify for NUA. They must be rolled to an IRA (or sold with ordinary tax treatment) as part of the lump-sum distribution. ✗

For a detailed explanation of how the lump-sum distribution requirement interacts with rolling non-qualifying securities to an IRA while NUA'ing the qualifying portion, see Partial NUA Strategy and NUA Execution Step-by-Step.

Abbott and AbbVie: the employer identity trap

Abbott Laboratories spun off AbbVie Inc. (the pharmaceutical business) on January 1, 2013, in a tax-free distribution. Abbott shareholders received one share of AbbVie common stock for every share of Abbott common stock they held. Cost basis was allocated between ABT and ABBV based on the relative opening prices on the first trading day (January 2, 2013), with Abbott opening at approximately $31.91 and AbbVie opening at approximately $20.49 — meaning roughly 61% of original Abbott basis was allocated to the continuing ABT shares and 39% to the new ABBV shares.⁴

Which shares qualify — it depends on where you work now

After the spinoff, employees were either Abbott employees or AbbVie employees. This determines which shares are "employer securities" for NUA purposes — and it's not as simple as "whichever company I worked for before the spinoff."

The dangerous scenario: a long-tenure employee who joined Abbott before the spinoff, became an AbbVie employee in 2013, and now holds both ABT and ABBV shares in their plan. Their employer is AbbVie — so only ABBV shares are employer securities. They cannot NUA the ABT shares, which must instead be rolled to an IRA (or cash distributed). Failing to understand this distinction will result in a botched lump-sum distribution where the wrong shares are NUA'd and the election is disqualified.

Both Abbott and AbbVie 401(k) plans are administered through Alight. Request lot-level basis separately for ABT and ABBV before modeling the NUA election. See Alight NUA Distribution Mechanics for the call process.

AbbVie's appreciation trajectory

AbbVie opened at approximately $20.49/share at spinoff (January 2, 2013). ABBV has since traded above $165/share in 2026, representing an 8:1 appreciation ratio on shares received in the spinoff distribution. Employees who joined AbbVie at the spinoff and remained through 2026 hold shares with basis established both from the original Abbott allocation and from subsequent employer match contributions — some at the $20–$40/share range, others at higher prices. The overall blended basis for a 30-year employee who was at Abbott before the spinoff and AbbVie after will depend on the lot mix.

Pfizer: Wyeth employees and the taxable-merger basis reset

Pfizer acquired Wyeth on October 15, 2009, in a transaction where each Wyeth share was converted into the right to receive $33.00 in cash plus 0.985 of a Pfizer share. Crucially, this merger was a taxable transaction for Wyeth shareholders — not a tax-free reorganization. Wyeth shareholders recognized gain or loss on the difference between the merger consideration received and their original Wyeth basis.⁵

What the taxable merger means for former Wyeth employees' NUA

For former Wyeth employees who received Pfizer shares in their 401(k) as part of the merger consideration:

• Their cost basis in Pfizer shares is the fair market value of PFE shares on the merger conversion date — not their original Wyeth cost basis. Pfizer stock traded at approximately $17–$18/share at the time of the October 2009 merger close.
• Because the basis "reset" at $17–$18/share rather than carrying over from the original Wyeth basis, former Wyeth employees lost the NUA benefit from whatever appreciation Wyeth stock had generated during their tenure. The NUA opportunity going forward is measured from the Pfizer conversion price.
• Pfizer stock has traded in the $15–$55 range since the merger and as of mid-2026 trades around $22–$28/share, depending on market conditions. Former Wyeth employees who received PFE shares at ~$17.50 in 2009 have a modest 1.5:1 to 2:1 appreciation ratio on those shares — a weak NUA case.

For current Pfizer employees who joined after 2009 and have received employer match in PFE stock at market prices from 2009 onward, the NUA analysis is straightforward: compare current FMV to the plan's blended cost basis. The Pfizer Savings Plan is administered by Fidelity. See Fidelity NUA Distribution Mechanics for the call process and Box 6 mechanics.

Merck: Schering-Plough merger and the partially carried-over basis

Merck completed its merger with Schering-Plough on November 3, 2009. Each Schering-Plough share was converted into the right to receive $10.50 in cash plus 0.5767 of a Merck share. Unlike the Pfizer/Wyeth transaction, the stock portion of this merger was structured to qualify as a tax-free reorganization under IRC §368 — meaning Schering-Plough shareholders generally carried over their Schering-Plough cost basis (allocated proportionally between the cash received and the shares received) into their new Merck shares.⁶

What this means for former Schering-Plough employees

• The 0.5767 Merck shares received per Schering-Plough share carry a proportion of the original Schering-Plough basis — specifically, 0.5767 of each Schering-Plough share was treated as exchanged for Merck stock (tax-free), and 0.4233 was treated as redeemed for the $10.50 cash (taxable to the extent of gain).
• Former Schering-Plough employees in 401(k) plans who received MRK shares in the merger generally have their pre-merger Schering-Plough basis allocated into those Merck shares. If Schering-Plough stock had low basis from long tenure, that low basis carries into the Merck shares and the NUA opportunity is preserved.
• Schering-Plough traded in the $20–$40 range in the years before the merger. Merck (MRK) has traded from approximately $25 at merger close to $90–$110 in 2026 — a 2.5:1 to 5:1 ratio. The NUA benefit is real but more moderate than at Lilly or AbbVie.

For former Schering-Plough employees, the critical step is confirming cost basis accuracy with the current plan recordkeeper. Mergers create recordkeeper data gaps — the same risk documented in the custodian guides for banks and telecom companies. Confirm your plan has accurate pre-merger lot data before executing the election.

DB pension income stacking in pharma

Several major pharma companies maintain or maintained defined benefit pensions for employees hired before certain cutoff dates. Pension income is fixed, begins in Year 1 of retirement, and fills ordinary income brackets before the NUA cost basis distribution hits. This creates the same bracket-stacking problem documented in the pension and energy sector guides: depending on pension income level, the cost basis distribution may land in the 22% or 24% bracket rather than the 12% bracket an otherwise-low-income retiree would face.

The strategic response is identical to other sectors with pensions:

• Time the NUA election to Year 1 — before Social Security begins, before RMDs begin, before any other variable income sources activate. Pension income alone typically does not exhaust the entire lower bracket space.
• Model the bracket ladder explicitly. If your pension is $60,000/year, standard deduction for MFJ 2026 ($30,000) still leaves $30,000 of the 12% bracket and the full 22% bracket before the 24% bracket begins. A $100,000 cost basis distribution with a $60K pension would land mostly in the 22% and 24% range — far better than the 37% rate the same basis would face as a rollover RMD in later years at full retirement income.
• Post-distribution, the 0% LTCG harvest window may be narrower — pension income already fills part of the space. But with no RMDs yet and no Social Security, significant 15% bracket room often still exists for annual tranche sales.

If you do not have a pension (as applies to many more recently hired Lilly employees and some others on enhanced 401(k) plans), Year 1 of retirement may produce nearly zero non-NUA ordinary income — an ideal environment for the cost basis distribution.

State tax table for pharma hub states

A core federal NUA advantage is that appreciation from NUA stock sales is taxed at 15%–20% LTCG rates rather than 37% ordinary income rates. Most major pharma hub states eliminate this spread entirely at the state level — treating long-term capital gains as ordinary income. The federal benefit is unaffected; the state simply doesn't add to it.

For pharma employees in NJ, IN, IL, CT, or PA: the federal NUA benefit of converting 37% ordinary income to 15%–20% LTCG is very large on its own. The absence of a state LTCG advantage does not change the federal math; it simply means the total lifetime savings calculation should use federal rates only for the state component.

See NUA and State Taxes for a complete analysis of how state tax treatment changes the NUA vs. rollover breakeven.

Worked example: 30-year Eli Lilly pharmaceutical research director

Profile: David, age 63, retiring from Eli Lilly after 30 years as a pharmaceutical research director in Indianapolis, Indiana. Married filing jointly. Spouse has $40,000/year in earned income.

Retirement accounts:

• Lilly 401(k) via Alight: 1,240 LLY shares
• Plan cost basis (lot-level, from Alight): $68/share blended average (contributions concentrated 2009–2019 at $37–$100/share)
• Total FMV at $1,213/share: $1,503,920
• Total cost basis: $84,320 (1,240 × $68)
• NUA amount: $1,419,600 (the appreciation that becomes LTCG)
• Appreciation ratio: 17.8:1
• Other: $600,000 rollover IRA from prior positions

Income in retirement Year 1 (no pension, Social Security delayed to age 67): Spouse income $40,000. No RMDs yet. Standard deduction MFJ 2026: ~$30,000. Taxable income before NUA: ~$10,000.

NUA tax cost in distribution year:

• Cost basis $84,320 is ordinary income. With existing taxable income of ~$10,000, total ordinary income ~$94,320 — mostly in the 12% and 22% brackets. Estimated federal OI tax on basis: ~$15,500.
• Indiana state tax on basis at 3.06%: ~$2,580.
• Total distribution-year tax on basis: ~$18,080.

NUA appreciation tax when sold (tranche selling scenario):

• David sells $120,000 of LLY stock per year in taxable brokerage — below the 15% LTCG bracket ceiling for MFJ ($614,950 combined income), and below the NIIT threshold ($250,000 MFJ) if managed carefully alongside other income.
• $1,419,600 NUA ÷ $120,000/year ≈ 12 years of sales
• At 15% federal LTCG: $1,419,600 × 15% = $213,000 federal LTCG tax⁷
• Indiana state tax on sales at 3.06%: ~$43,443
• Total NUA path tax (federal + Indiana): ~$274,500

IRA rollover alternative:

• $1,503,920 rolled to IRA, eventually distributed as ordinary income over retirement at RMD-driven rates.
• In higher-income years (post-SS, post-age 73 RMDs), the effective federal rate on these distributions likely averages 28–35%.
• At 30% blended average: $1,503,920 × 30% = $451,200 federal OI tax
• Indiana at 3.06%: $1,503,920 × 3.06% = $46,020
• Total IRA rollover tax (federal + Indiana): ~$497,200

Federal NUA advantage: approximately $222,700. Even without any state LTCG benefit (Indiana taxes LTCG as ordinary income), the federal conversion from 30% ordinary income to 15% LTCG saves over $220,000 in lifetime taxes. If David manages tranche selling carefully to stay below the NIIT threshold of $250,000 MAGI, the full 15% LTCG rate applies and no additional 3.8% NIIT is owed.

When NUA wins for pharma employees

• Long tenure at Lilly, AbbVie, or J&J with contributions concentrated in the 2009–2015 trough. Appreciation ratios of 15:1 to 30:1 make NUA overwhelmingly superior to rollover at any reasonable tax assumption.
• No pension or modest pension. A retiree with no pension income has maximum bracket room for the cost basis distribution in Year 1 of retirement — the cost basis hit can land almost entirely in the 12%–22% bracket rather than the 24%–37% range.
• Pre-Social Security, pre-RMD timing window. Age 62–67 is typically the narrowest income window for most pharma retirees. Using this window to execute NUA (pay basis at low bracket) and begin tranche selling (harvest NUA appreciation at 0%–15% LTCG while income is low) captures the maximum lifetime benefit.
• Estate planning hold. For pharma employees planning to hold NUA stock until death, the post-distribution appreciation receives a step-up in basis at death (while the NUA amount itself is IRD). Very large Lilly or AbbVie positions that could be held or donated to charity make the hold-to-death strategy particularly powerful. See NUA and Estate Planning.

When NUA doesn't help for pharma employees

• Low appreciation ratio. Former Wyeth employees who received Pfizer shares at ~$17.50 in 2009, with PFE now at $25, have a 1.4:1 ratio — NUA's breakeven typically requires 2:1 or better to overcome the ordinary income cost basis hit vs. rollover's tax deferral benefit.
• Wrong shares elected. J&J employees who attempt to NUA KVUE shares, or Abbott/AbbVie employees who elect the wrong employer's stock, will disqualify the election entirely. Once the lump-sum distribution is executed incorrectly, there is no correction mechanism.
• Very high pension income stacking into 37% bracket for cost basis. If pension income already pushes ordinary income above ~$630,000 MFJ, the cost basis distribution lands at 37% — identical to what the rollover eventually pays. The NUA benefit still exists on the appreciation portion (LTCG vs. OI), but the cost basis savings disappear.
• IRA rollover already executed. Rolling employer stock to an IRA permanently eliminates the NUA election under IRC §402(e)(4)(B). For pharma employees with large Lilly or AbbVie positions, this mistake can cost $150,000–$300,000+ in foregone tax savings. See Should You Roll Over Company Stock?

Questions to ask your plan administrator

1. Does my plan allow in-kind distribution of employer stock shares to a taxable brokerage account? (This must be confirmed in writing — it is not universal.)
2. Can you provide lot-level cost basis for my employer stock — showing each contribution date, the number of shares acquired, and the cost per share?
3. Are there any non-qualifying shares in my plan account alongside the employer stock? (For J&J employees: separate JNJ from KVUE. For Abbott/AbbVie: confirm which stock is employer securities for your specific plan.)
4. What is the complete lump-sum distribution procedure? What other plan assets must I distribute in the same tax year to satisfy the lump-sum distribution requirement under IRC §402(e)(4)?
5. Is there a December 31 deadline for completing the full lump-sum distribution if I initiate in-kind stock transfer in Q4?
6. What is the mandatory 20% withholding amount on the cost basis portion, and how do I fund it without liquidating shares?

Sources

1. Eli Lilly and Company — LLY Stock Price History, MacroTrends (macrotrends.net); LLY all-time high $1,238 on June 29, 2026 per search results as of July 2026.
2. Alight Solutions — Lilly 401(k) Savings Plan recordkeeper; general Alight NUA mechanics described at NUA Distribution Through Alight Solutions.
3. Johnson & Johnson — Kenvue split-off exchange offer, final exchange ratio 8.0324 Kenvue shares per J&J share tendered, announced August 16, 2023 (jnj.com).
4. AbbVie Inc. Form 8-K (2013) — Abbott/AbbVie spinoff; tax-free distribution; 1:1 exchange ratio; cost basis allocation based on January 2, 2013 opening prices (sec.gov).
5. Pfizer Inc. Form 8-K (October 15, 2009) — Wyeth merger completion; each Wyeth share converted to $33.00 cash + 0.985 PFE shares; taxable transaction for Wyeth shareholders (sec.gov).
6. Merck & Co. — Tax Summary for Schering-Plough Merger, November 3, 2009; stock-for-stock portion treated as tax-free reorganization under IRC §368; $10.50 cash portion taxable (merck.com).
7. IRS Rev. Proc. 2025-32 — 2026 tax parameters including LTCG rates: 0% up to $49,450 (single) / $98,900 (MFJ); 15% up to $544,850 (single) / $614,950 (MFJ); 20% above. NIIT threshold: $200,000 single / $250,000 MFJ (IRC §1411). Values verified as of July 2026.

Values verified as of July 2026. Tax law is subject to change. Consult a fee-only advisor before executing any NUA election.