PLR 200607029: Hospital pension funding waiver requests denied

Plain-English summary

A hospital asked the IRS to waive minimum funding requirements for its pension plan for the 2002 and 2003 plan years. The hospital reported reduced reimbursement revenue, recurring losses, cash flow problems, and exhausted credit lines. The IRS had tentatively denied the requests because it questioned whether the financial hardship was temporary; the hospital then filed a Chapter 11 bankruptcy petition and waived its right to a conference. The IRS denied both waiver requests and told the hospital to file Form 5330 and pay excise taxes on accumulated funding deficiencies. The letter does not disclose the plan years for the excise taxes because those years were redacted.

Ruling snapshot

• Question: Would the IRS waive the hospital plan's minimum funding standard for the 2002 and 2003 plan years?
• Outcome: Denied both waiver requests.
• Key authorities: IRC §§ 412, 4971(a).

Full text (IRS public release)

Significant Index No. 0412.06-00
DEPARTMENT OF THE TREASURY 200607029
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

NOV 21 2005

SE:T:EP:RA:T:A1

Hospital = [redacted]

This letter constitutes notice that your requests for waivers of the minimum funding standard for the above-named plan for the plan years ending December 31, 2002, and December 31, 2003, have been denied.

The Hospital is a privately-owned [redacted]-bed tertiary care, not-for-profit [redacted] formed from [redacted] institutions. The Hospital is noted for its [redacted]. Currently, the Hospital has [redacted].

The Hospital ascribes most of its financial difficulties to the healthcare reform legislation enacted in the state in which it operates, and other changes that dramatically reduced reimbursements from HMO’s, Medicare and Medicaid. This had a significant effect on patient revenues, since 70% of the Hospital's business is from Medicare and Medicaid patients. As a result of this and other difficulties, the Hospital has experienced recurring operating losses and cash flow problems, and reports that it has fully utilized all available lines of credit.

You were notified in a letter dated September 28, [redacted] that your request had been tentatively denied, based on concerns that the Hospital’s financial hardship was not temporary in nature. On September 30, [redacted] the Hospital filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code, and in a conversation with
[redacted] of this office on October 3, 2005, you indicated that you would waive the Hospital’s right to a conference to review the decision regarding the requested funding waivers. Hence, your requests for waivers of the minimum funding

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standard for the plan years ending December 31, [redacted] and December 31, [redacted] have been denied.

You should note that excise taxes under section 4971(a) of the Internal Revenue Code are currently due on the accumulated funding deficiencies in the Plan for the Plan years ending December 31, [redacted] December 31, [redacted] and December 31, [redacted] You should file Form 5330 for each of these plan years as soon as possible to report and pay the excise taxes.

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.

We have sent a copy of this letter to the Manager, EP Classification in
, to the Manager, EP Compliance Unit in and to your
authorized representative pursuant to a power of attorney on file in this office.

If you require further assistance in this matter, please contact [redacted]

Sincerely yours,

[signature]

Carol D. Gold
Director, Employee Plans