PLR 200509033: IRS grants pension plan a minimum funding waiver for 2003

Plain-English summary

The IRS granted a defined benefit pension plan a waiver of its minimum funding standard for the plan year ending December 31, 2003. The plan sponsor operated a skilled nursing and outpatient rehabilitation facility and reported that a drop in occupied beds had reduced its revenue. At the start of 2003, the plan's assets equaled 79 percent of its current liability. The waiver covered the contribution otherwise needed to bring the funding standard account balance to zero for that year. The IRS warned that benefit increases or other plan amendments while the waived deficiency remained unamortized could trigger consequences under section 412(f) and ERISA.

Ruling snapshot

• Question: Would the IRS waive the plan's minimum funding standard for the 2003 plan year?
• Outcome: Approved: a waiver was granted under IRC § 412(d) and ERISA § 303.
• Key authorities: IRC §§ 412(d), 412(f); ERISA §§ 303, 304(b).

Full text (IRS public release)

Significant Index No. 0412.06-00
200509033

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEC 1 0 2004

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, 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 waiver has been granted.

The Company is a licensed 455 bed skilled nursing facility and a comprehensive outpatient rehabilitation facility, located in [redacted]. The company has experienced a drop in the daily bed census (the percentage of beds being occupied), which has caused a significant reduction in revenue. The Company has taken steps to improve cash flow, and has experienced a recent increase in its census. As of January 1, 2003, the value of the assets of the plan was equal to 79% 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.

200509033

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