PLR 200349003: Pension funding waiver depends on paying past excise taxes

Plain-English summary

A company with declining sales and repeated losses sought a minimum funding waiver for its pension plan. The IRS granted a conditional waiver under IRC § 412(d) for the plan year ending December 31, 2002. The company had to pay in full, within 90 days of the letter, the ten percent excise taxes imposed under § 4971(a) for funding deficiencies in the 2000 and 2001 plan years. If it failed to pay, the waiver would become retroactively void.

Ruling snapshot

• Question: Could the pension plan receive a funding waiver for its 2002 plan year?
• Outcome: Approved a conditional waiver tied to payment of prior excise taxes.
• Key authorities: IRC §§ 412(d), 412(f), 4971(a); ERISA §§ 303, 304.

Full text (IRS public release)

Significant Index No. 0412.06-00

200349003

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

SEP 09 2003

In re: [illegible]
(the “Plan”).

Dear [illegible]:

This letter constitutes notice that a conditional waiver of the minimum funding standard has been granted for the above-named pension plan for the plan year ending December 31, 2002.

This conditional waiver 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 amount for which the conditional waiver has been granted is the contribution that would otherwise be required to reduce the balance in the funding standard account of the plan to zero as of the end of the plan year for which the waiver has been granted.

[illegible] (the “Company”) is a [illegible] that serves a variety of customers. The Company has experienced temporary substantial business hardship as evidenced by losses in income in three of the last four fiscal years (taking into account the losses incurred under the prior ownership for 1999 and 2000). Sales for the 2002 fiscal year were approximately 65% of the 1999 total sales.

In an effort to recover from this hardship, the Company has sought to revitalize the business through increased sales, cost reductions and the introduction of advanced digital technology and file transfer capabilities. As of January 1, 2001, benefit accruals under the Plan were frozen.

Plan assets as of December 31, 2001, were $1,131,056, and current liabilities were
$1,791,646, with a funding ratio of 63.13%.

200349003

It has been determined that an application of the minimum funding standard would be adverse to the interests of plan participants in the aggregate. Accordingly, this waiver has been granted subject to the following condition, which you have agreed to:

1. Within 90 days from the date of this ruling letter, the ten percent excise taxes
   imposed, under section 4971(a) of the Code, on the accumulated funding deficiencies for the plan years ended December 31, 2000 and 2001 shall be paid in full.

If the Company fails to meet the above condition, this waiver is retroactively null and void.

Your attention is called to section 412(f) of the Code and section 304 of ERISA which describes the consequences which result in the event the plan is amended to increase benefits, to change the rate in the accrual of benefits, or to change the rate of vesting while any portion of the waived amount remains unamortized.

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

When filing Form 5500 for the plan year ending December 31, 2002, the date of this letter should be entered on Schedule B (Actuarial Information). We have sent a copy of this letter to the EP Classification Manager in [illegible] and to the authorized representative listed on the power of attorney (Form 2848) on file with this office.

If you have any questions concerning this matter, please contact [illegible]

Sincerely,

Martin L. Pippins, Manager
Employee Plans Actuarial Group 2