PLR 200445032: Pension funding waiver granted after litigation and weak sales

Plain-English summary

A company sought relief from the minimum funding standard for its defined benefit pension plan for the year ended December 31, 2003. The letter describes litigation costs, a weather related sales decline, and workforce and wage reductions. The plan's assets were 62% of current liability at the stated date. The IRS granted the waiver under section 412(d). It warned that increasing benefits or liabilities in company retirement plans while the waived deficiency remained unamortized could have consequences under section 412(f) and ERISA.

Ruling snapshot

• Question: Would the IRS waive the pension plan's minimum funding standard for 2003?
• Outcome: Approved.
• Key authorities: IRC §§ 412(d), 412(f); 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

200445032
AUG 12 2004
SE:T:EP:RA:T:A1

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, 2003.

This waiver for the plan year ended December 31, , 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 has been involved in litigation which caused a significant drain on the company. The future litigation costs are expected to be much lower. The company’s products are weather related, and the cool and wet summer in caused a significant drop off in revenue. The company has eliminated salaried positions and plans to reduce the hourly work force. The company has also frozen wages and salaries. As of January 1,

the value of the assets of the plan was equal to 62% 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.

200445032

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, 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
Manager, Actuarial Group 1