PLR 200242043: Pension plan receives a conditional minimum funding waiver

Plain-English summary

The IRS granted a conditional waiver of the minimum funding standard for a company's defined benefit pension plan for the year ended December 31, 2001. The company had net losses tied to customer bankruptcies, a discontinued business line, early retirement programs, and a reorganization. At the start of 2001, the plan's assets equaled 72 percent of its current liability. The waiver required timely contributions for the 2002 and 2003 plan years and security acceptable to the Pension Benefit Guaranty Corporation within twelve months. If those conditions were not met, the waiver would be retroactively void.

Ruling snapshot

• Question: May the plan receive a conditional waiver of its 2001 minimum funding standard?
• Outcome: Approved, subject to two conditions.
• Key authorities: IRC §§ 412(c), 412(d), and 412(f); ERISA §§ 303 and 304(b).

Full text (IRS public release)

Significant Index No. 0412.06-00
200242043

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION

JUL 17 2002

[illegible]
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 ended December 31, 2001.

This conditional waiver for the plan year ended December 31, 2001, 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 Company had net losses for the years ending December 31, 2000, and December 31, 2001, primarily due to bad debt losses following the bankruptcies of two of its larger customers, closing costs related to the discontinuance of one of the Company’s lines of business, pension expenses related to early retirement programs, and extraordinary consulting and legal fees related to a reorganization that occurred in December 2000. The Company, however, expects a return to profitability in 2002, primarily as a result of cost-cutting programs put in place in 2001 as a response to the aforementioned events, and reduced interest costs related to the December 2000 reorganization. However, prospects for recovery are still uncertain.

As of January 1, 2001, the value of the assets of the plan was equal to 72% of the plan's current liability. Because the prospects for recovery are uncertain and because the plan is under-funded, we are granting this waiver subject to the following conditions:

(1) The contributions required to satisfy the minimum funding standard for the plan years ending December 31, 2002 and 2003, are to be timely made as defined in section 412(c)(10) of the Code (without a waiver being granted for such years).

200242043

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(2) The waiver for the plan year ended December 31, 2001, is to be secured, within twelve months of the date of this letter, in a manner acceptable to the Pension Benefit Guaranty Corporation.

If these conditions are not satisfied, the waiver is retroactively null and void. You agreed to these conditions in a letter dated July 3, 2002.

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, 2001, 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 power of attorney (Form 2848) on file. A copy of this letter is also being sent to the

A copy of this letter should be furnished to
the enrolled actuary for the plan.

If you have any questions on this ruling letter, please contact

Sincerely,
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Carol D. Gold
Director, Employee Plans