PLR 200251021: Pension plan receives a minimum funding waiver for 2001

Plain-English summary

The IRS granted a waiver of the minimum funding standard for a company's defined benefit pension plan for the year ended December 31, 2001. The company had negative earnings in 1999 and 2000, had completed a costly restructuring, and reported a profit in 2001 despite falling revenue. At the start of 2001, the plan's assets equaled 61 percent of its current liability. The waived amount was the contribution otherwise needed to bring the funding standard account balance to zero for that plan year. The IRS warned that benefit increases or other plan amendments could have consequences while the waived deficiency remained unamortized.

Ruling snapshot

• Question: May the plan receive a waiver of its 2001 minimum funding standard?
• Outcome: approved
• Key authorities: IRC § 412(d) and (f); ERISA §§ 303 and 304(b)

Full text (IRS public release)

Significant Index No. 0412.06-00
200251021

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
SEP 24 2002

[illegible]

In re:

This letter constitutes notice that with respect to the above-named defined benefit pension plan we have granted a waiver of the minimum funding standard for the plan year ended December 31, 2001.

This 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 has a calendar year fiscal year. The Company had negative earnings in 1999 and 2000. The Company did show a profit for 2001 even though it had a marked drop off in revenue. The Company also had completed a restructuring in 2000 that was costly.

As of January 1, 2001, the value of the assets of the plan was equal to 61% of the plan's current liability

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.

200251021

2

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 the Manager, Employee Plans Classification in

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,

[signature]
Norman Greenberg
Acting Manager, Actuarial Group 1