Written determination 200030032: Pension funding waiver granted with contribution condition

Plain-English summary

The IRS granted a conditional waiver of the minimum funding standard for a defined benefit pension plan's 1999 plan year. The sponsor had reported losses in 1997 and 1998 and lacked enough cash to cover both routine expenses and its required contribution, although it reported a small profit in 1999. The plan's assets equaled 83 percent of its current liability at the start of 1999. The waiver required timely minimum funding contributions for the 2000 and 2001 plan years; failure would make the 1999 waiver retroactively void.

Ruling snapshot

• Question: Would the plan receive a waiver of its 1999 minimum funding standard?
• Outcome: Approved, conditional on timely contributions for 2000 and 2001.
• Key authorities: IRC § 412(d) and (c)(10); ERISA § 303.

Full text (IRS public release)

Internal Revenue Service                Department of the Treasury
200030032

Significant Index No. 0412.06-00 Washington, DC 20224

Person to Contact:
Telephone Number:

Refer Reply to:
T:EP:RA:T:A1

Date: MAY 01 2000

In re:

This letter constitutes notice that with respect to the above-named
defined benefit pension plan we have granted a conditional waiver of the
minimum funding standard for the plan year ending December 31, 1999.

This conditional waiver for the plan year ended December 31, 1999,
has been granted in accordance with section 412(d) of the Internal
Revenue Code and section 303 of the Employee Retirement Income Security
Act of 1974 (ERISA). The waived amount is the contribution which would
otherwise be required to reduce the balance in the funding standard
account to zero as of the end of the plan year for which this
conditional waiver has been granted.

The Sponsor has a calendar year fiscal year. For the 1997 and 1998
fiscal years, the sponsor had negative working capital and net worth.
For its 1997 and 1998 fiscal years, the sponsor had net operating
losses. In the 1999 fiscal year, the sponsor had a de minimis profit
and positive working capital. However, the sponsor has insufficient
cash-on-hand to meet both routine operating expenses and to contribute
the minimum funding requirement.

The sponsor is working with an outside consulting service to effect
a recovery. As a result, the sponsor has had a reduction in staff,
reduced contracted services and vendors, and improved its collection of
account receivables. Other measures have been taken as well so that the
Sponsor went from a large operating loss in 1997 to a de minimis profit
in 1999 even though revenues remained constant. As these measures
continue to take hold, the sponsor expects its cash flow position to
improve and to resume funding the plan.

As of January 1, 1999, the value of the assets of the plan was
equal to 83% of the plan's current liability. However, because the
prospects for recovery are uncertain and because the plan is under-
funded, we are granting this waiver subject to the following condition:

The contributions required to satisfy the minimum funding standard
for the plan years ended December 31, 2000 and 2001, are to be
timely made as defined in section 412(c)(10) of the Code.

If this condition is not satisfied, the waiver is retroactively
null and void. You agreed to this condition in a letter dated April 28, 2000.


-2- 200030032

Your attention is called to section 412(f) of the Code and section
304(b) of ERISA which describe the consequences that would result in the
event the plan is amended to increase benefits, change the rate in the
accrual of benefits or to change the rate of vesting, while any portion
of the waived funding deficiency remains unamortized. Please note that
any amendment to other retirement plans maintained by the company or to
the company’s profit sharing plan, to increase the liabilities of those
plans would be considered an amendment for purposes of section 412(f) of
the Code and section 304(b) of ERISA.

This ruling is directed only to the taxpayer that requested it.
Section 6110(k)(3) of the Code provides that it may not be used or cited
by others as precedent.

When filing Form 5500 for the plan year ended December 31, 1999,
the date of this letter should be entered on Schedule B (Actuarial
Information). A copy of this letter is being sent to your authorized
representative in accordance with a Form 2848 (Power of Attorney) on
file. We have sent a copy of this letter to the Acting Area Manager for
Employee Plans for the Key District in

Sincerely,

[illegible]

James E. Holland, Jr., Manager
Employee Plans Actuarial Group 1
Tax Exempt and Government Entities
Division