PLR 200523034: Pension plan receives minimum funding waiver

Plain-English summary

The IRS granted a company a waiver of the minimum funding standard for its defined benefit pension plan for the year ended December 31, 2003. The waived amount was the contribution otherwise needed to bring the plan's funding standard account balance to zero for that year. The letter describes company losses and cost cutting, new contracts, and plan assets worth 72 percent of current liabilities at the start of 2003. It warns that benefit increases or changes to accrual or vesting while the funding shortfall remains unamortized can have consequences under IRC § 412(f) and ERISA.

Ruling snapshot

• Question: Would the IRS waive the pension plan's minimum funding standard for 2003?
• Outcome: Approved for the plan year ended December 31, 2003.
• Key authorities: IRC §§ 412(d), 412(f); ERISA §§ 303, 304(b).

Full text (IRS public release)

Significant Index No. 0412.06-00

200523034

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

SET:EP:RA:T:A1

MAR 16 2005

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 has a calendar year fiscal year. The Company had negative earnings in . The Company has taken measures to cut cost, including reduction of administrative expenses, reduction of salaries, and layoffs. The company is also aggressively acquiring new business, and has received several new contracts. The company made a small profit in *** and expects to make a larger profit for .

As of January 1, 2003, the value of the assets of the plan was equal to 72% 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.

200523034

2

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,

[signature]

Norman Greenberg, Manager
Employee Plans Actuarial Group 1