PLR 200504038: Pension plan receives conditional minimum funding waiver

Plain-English summary

A company's defined benefit pension plan faced a funding deficiency for its 2003 plan year. The company reported declining revenue, customer bankruptcies or closures, and losses over three years. The IRS granted a conditional waiver of the plan's minimum funding standard under IRC § 412(d). The condition required the company to pay or arrange payment of the 10 percent excise tax tied to the previous year's funding deficiency; the letter says the tax had already been paid. The IRS also warned that plan amendments increasing benefits or liabilities could have consequences while the waived deficiency remained unamortized.

Ruling snapshot

• Question: Would the IRS waive the minimum funding standard for the plan year ended December 31, 2003?
• Outcome: Approved conditionally; the stated excise tax condition had been satisfied.
• Key authorities: IRC §§ 412(d), 412(f), 4971(a); ERISA §§ 303, 304(b).

Full text (IRS public release)

Significant Index No. 0412.06-00 200504038

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION

NOV 02 2004

[illegible]

In re:

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, 2003.

This waiver for the plan year ended December 31, 2003 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 conditional waiver has been granted.

The company has a calendar year fiscal year. The Company is a producer of [redacted]
[redacted]. Starting in [redacted] the company’s main customers suffered intense competition from off shore operations. This caused [redacted] of the company’s major customers to go into bankruptcy or closure leaving the company with $[redacted] in bad debts. Revenues have declined from $[redacted] in [redacted] to $[redacted] in
[redacted]. The company has experienced losses in the last three years. As of January 1, [redacted], the value of the assets of the plan was equal to [redacted]% of the plan's current liability. We are granting this waiver subject to the condition that the Taxpayer either pays or makes arrangements with the appropriate IRS office to pay the 10% excise taxes applicable under section 4971(a) of the Internal Revenue Code associated with the funding deficiency for the plan year ended December 31, 2002.

The condition has already been satisfied with the remittance of the tax due.

200504038

2

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, 2003, 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