PLR 200445044: Defined benefit plan received minimum funding waiver

Plain-English summary

The IRS granted a waiver of the minimum funding standard for a company's defined benefit pension plan for a redacted plan year. The company reported rising material costs, weak sales, price increases, and a restructuring intended to improve liquidity. The waived amount was the contribution otherwise needed to bring the plan's funding standard account balance to zero at year end. The IRS warned that benefit increases or changes to accrual or vesting rates while the waived deficiency remained unamortized could have consequences under section 412(f) and ERISA. The letter did not disclose the plan year or the ratio of plan assets to current liabilities.

Ruling snapshot

• Question: Would the defined benefit plan receive a waiver of its minimum funding standard for the stated plan year?
• Outcome: Approved: the waiver was granted.
• 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

200445044

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION

AUG 10 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,

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 experienced rising costs for materials while experiencing a weak climate for sales. The company is introducing price increases to customers. It is also targeting sales and marketing to key accounts that will lead to higher and more profitable sales. The company is also in the process of restructuring that will provide liquidity and achieve short-term concessions from lenders.

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

200445044

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