PLR 200437039: Conditional waiver of pension plan minimum funding granted

Plain-English summary

A company facing temporary financial hardship received a conditional waiver of its pension plan's minimum funding requirement for the plan year beginning October 1, 2002. The IRS cited the company's losses, negative working capital, and steps to improve its business. To keep the waiver, the company must make the specified future plan contributions and pay any tax owed under section 4971(a) within 180 days of the letter. Failure to meet either condition makes the waiver retroactively void. The letter also warns about restrictions on increasing plan benefits while the waived deficiency remains unamortized.

Ruling snapshot

• Question: May the company receive a waiver of the plan's minimum funding standard for the stated plan year?
• Outcome: Approved conditionally; failure to meet the conditions voids the waiver retroactively.
• Key authorities: IRC §§ 412(d), 412(f), 4971(a); ERISA §§ 303, 304(b).

Full text (IRS public release)

Significant Index No. 0412.06-00
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

200437039

JUN 17 2004

In re:

Company =

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 beginning October 1, 2002.

The conditional waiver has been granted in accordance with section 412(d) of the Internal Revenue Code (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 conditional waiver has been granted.

The Company [illegible]. The Company has experienced substantial, temporary hardship as evidenced by net losses for the [illegible] and [illegible] fiscal years, and negative working capital for the [illegible] and [illegible] fiscal years.

The Company has taken steps to effect recovery that include reducing wages to clerical, union members, salaried employees, and owners; introducing new management in manufacturing to increase efficiencies and output; bringing in an outside consulting firm that specializes in turnaround work and positioning their consultant as the Chief Operating Officer; [illegible] industry that include additional product information to meet current trends in the industry; and diversification of flexible packaging to focus on other types of packaging for [illegible] and other products, and hiring a new sales person

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with extensive experience in this market. While the Company experienced a loss for the first quarter of the [illegible] fiscal year, the Company experienced a profit for the period from [illegible] through [illegible], and for the month [illegible].

The Plan was amended to cease benefit accruals for non-union employee and operating engineers as of [illegible] and to cease benefit accruals for union participants as of [illegible]. The Plan experienced funding deficiencies for the [illegible] and the [illegible] plan years, resulting in a beginning-of-year accumulated funding deficiency for the plan year beginning
[illegible]. The ratio of the Plan’s current liability to the value of assets is
[illegible]%.

This waiver has been granted subject to the following conditions, which you have agreed to:

1. The Company will contribute the minimum funding standard to the plan by
   the period described in § 412(c)(10) of the Code for the plan years beginning [illegible], and [illegible] (i.e., by [illegible] of the following year), including the amortization payments for the conditional waiver granted by this letter; and

2. Any taxes owed for the plan under section 4971(a) of the Code for the
   plan year beginning [illegible], will be paid by the Company by 180 days from the date of this letter.

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

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 to increase the liabilities of those plans, or the establishment of new 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 organization 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 beginning [illegible] the date of this letter should be entered on Schedule B (Actuarial Information). We have sent a copy of this letter to the Manager, EP Classification, in [illegible].

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If you have any questions concerning this letter, please contact [illegible]. In any correspondence relating to this letter, please refer to SE:T:EP:RA:T:A2 as well.

Sincerely,

Donna M. Prestia, Acting Manager
Employee Plans Actuarial Group 2

cc: Manager, EP Classification