PLR 200321025: Pension plan receives minimum funding waiver

Plain-English summary

The IRS granted a waiver of the minimum funding standard for a defined benefit pension plan's year ended December 31, 2001. The company reported losses in 1999 through 2001, cuts to expenses and payroll, and new contracts. The letter states that plan assets equaled 68 percent of current liability as of January 1, 2001. The waiver covered the contribution otherwise required to bring the funding standard account to zero for the plan year. The IRS warned that benefit or vesting increases while the waived deficiency remained unamortized could trigger consequences under section 412(f) and ERISA.

Ruling snapshot

• Question: Would the IRS waive the plan's minimum funding standard for the stated plan year?
• Outcome: Approved the funding waiver under section 412(d).
• Key authorities: IRC § 412(d), (f); ERISA §§ 303, 304(b).

Full text (IRS public release)

Significant Index No. 0412.06-00

200321025

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB 27 2003

[illegible handwritten notation]

In re:

Dear

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 waiver has been granted.

The company has a calendar year fiscal year. The Company had negative earnings in 1999, 2000 and 2001. The Company has taken measures to cut cost, including reduction of administrative expenses, reduction of salaries, and layoffs. The company is also aggressively acquiring new business, and has received several new contracts

As of January 1, 2001, the value of the assets of the plan was equal to 68% 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.

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

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

Sincerely,

Norman Greenberg
Acting Manager, Actuarial Group 1

cc: Manager, Employee Plans Classification