PLR 200516018: Pension plan receives minimum funding waivers after business closures

Plain-English summary

A company requested relief from the minimum funding requirement for its defined benefit pension plan. It had closed a manufacturing plant and distribution centers, causing significant business hardship, although its remaining operations were profitable. The IRS granted waivers for two plan years under IRC § 412(d). The waived amount was the contribution otherwise needed to bring the plan's funding standard account balance to zero for each affected year. The letter also warned that benefit or vesting changes could have consequences while the waived funding deficiency remained unamortized.

Ruling snapshot

• Question: Would the IRS waive the minimum funding standard for the company's defined benefit plan for the specified plan years?
• Outcome: Approved for the two redacted plan years.
• 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

200516018

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JAN 27 2005

[illegible handwritten note]

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 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 [redacted]
[redacted] The company’s customer base includes fast food restaurants, hotels food processing plants and pre-cast prick panel contractors. The company has had to close a manufacturing plant as well as distribution centers. These closures have caused a significant business hardship. After these closures, the restructured company is able to concentrate on its remaining operations. These remaining operations continue to be profitable.

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

2

200516018

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 years ended [redacted] and [redacted]
[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

If you have any questions on this ruling letter, please contact

Sincerely,

[signature]
Norman Greenberg
Manager, Actuarial Group 1