PLR 200506032: IRS granted a pension plan minimum funding waiver

Plain-English summary

A steel products company sought relief from the minimum funding standard for its defined benefit pension plan. It reported declining revenue and sharply higher raw material costs, while contracts delayed its ability to raise prices for customers. The IRS granted a waiver for two redacted plan years under IRC § 412(d). The waived contribution was the amount otherwise needed to bring the funding standard account balance to zero. The letter also warned about the consequences of increasing plan benefits or liabilities while the waived deficiency remained unamortized.

Ruling snapshot

• Question: Would the IRS waive the plan's minimum funding standard for two plan years?
• Outcome: Approved.
• Key authorities: IRC §§ 412(d), 412(f); ERISA §§ 303, 304(b).

Full text (IRS public release)

Significant Index No. 0412.06-00
200506032

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

NOV 18 2004

SE:T:EP:RA:T:A1

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 years ended [redacted] and [redacted].

This waiver for the plan years ended [redacted] and [redacted] 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 manufactures many steel products including, garbage cans, shelving, lockers, cabinets and storage racks. The end users of these products include schools, hospitals, governments, and manufacturing plants. The company’s revenue has declined every year from [redacted] to [redacted]. The company has endured triple digit inflation in their primary raw commodity, and significant inflation in their other raw materials. Most of the company’s orders are subject to contract pricing; this makes the company unable to increase prices on most of their customers until the contracts expire. The company is quoting work for future contracts at substantially higher prices. The company has made improvements on it’s primary product, which will allow it to increase it’s market share.

As of [redacted] the value of the assets of the plan was equal to [redacted]% of the plan's current liability.

200506032

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 [redacted], 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 [redacted].

If you have any questions on this ruling letter, please contact [redacted].

Sincerely,

Norman Greenberg
Manager, Actuarial Group 1