PLR 200328050: Hospital pension plan receives conditional funding waiver

Plain-English summary

A small hospital requested relief from the minimum funding standard for its defined benefit pension plan for the plan year ending in 2001. The hospital's cash flow had fallen after a drop in patient volume, and the plan's assets were below its current liability. The IRS granted a conditional waiver under § 412(d). The hospital had to make required contributions for 2002 and 2003 on time and secure the waived amount within 12 months in a manner acceptable to the Pension Benefit Guaranty Corporation. Failure to meet either condition would make the waiver retroactively void.

Ruling snapshot

• Question: Could the hospital's pension plan receive a waiver of its 2001 minimum funding standard?
• Outcome: Approved conditionally; later contributions and security for the waiver were required.
• Key authorities: IRC §§ 412(d), 412(f); ERISA §§ 303, 304(b).

Full text (IRS public release)

Significant Index No. 0412.06-00
200328050

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
APR 18 2003
In re:
Hospital =
Dear

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.

The conditional waiver for the plan year ended December 31, 2001, has been granted in accordance with section 412(d) of the Internal Revenue Code (the “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 Hospital is a small independent facility with no affiliations. In 2001, the Hospital had a significant decrease in operating cash flow, primarily due to decreased patient volume following the movement of one its three general surgeons to its nearest competitor. In response, the Hospital began a lengthy process of reviewing referral patterns with its medical staff and the reasons for the non-use of its current surgeons and specialists. These efforts have shown some success as the Hospital, in 2002, was able to partially reverse the decrease in patient volume it experienced in 2001. In addition, in 2003, the Hospital expects to receive permission to use funds in a sinking fund, for capital improvements, which will, in effect, further improve operating cash flow.

As of January 1, 2001, the value of the assets of the plan was equal to 63% 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 December 31, 2003, shall be timely made within the meaning of section 412(c)(10) of the Code (without a waiver being granted for such years).

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(2) The waiver of the minimum funding standard for the plan year ended December 31, 2001, shall 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 April 8, 2003.

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 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,

Carol Gold
Director, Employee Plans