PLR 200642008: IRS denies waiver of pension plan funding standard

Plain-English summary

A company asked the IRS to waive the minimum funding standard for its pension plan during a period of financial hardship. The company described falling demand, industry competition, a strike, and continuing losses. Its five-year projection showed that it would not be able to meet the funding standard until at least 2010. The IRS denied the waiver because it found the hardship was not temporary and the company could not make the required contributions. The letter also said excise taxes under section 4971(a) were due on the plan's accumulated funding deficiencies.

Ruling snapshot

• Question: Could the company receive a waiver of its pension plan's minimum funding standard?
• Outcome: Denied because the hardship was not temporary and projected contributions remained insufficient.
• Key authorities: IRC § 4971(a) (excise taxes discussed in the letter).

Full text (IRS public release)

Significant Index No. 0412.06-00

200642008

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
JUL 24 2006

Re:

Company =

This letter constitutes notice that your request for a waiver of the minimum funding standard for the above-named plan for the plan year ending June 30, , has been denied.

The Company is involved in the
. The current financial hardship
began in and was brought on by a decline in demand for the Company’s products, which reflects competition from abroad and a general downturn in the industry as a whole. By early 2000, customers had transitioned to suppliers in

In June, 2000, a strike over economic issues began that could not be settled and replacement workers were hired in 2001. Also during this time, a recession began and sales declined further and remained flat through 2002. A recovery began in late 2003. As a result, the Company has suffered substantial losses and has been unable to meet the minimum finding standard since the plan year ending June 30,

You were notified in a letter dated February 24, 2006, that your request had been tentatively denied. A conference of right was held on March 16, 2006. At that time, a decision was made to await a 5-year financial projection which was received on

June 27, 2006. The projection indicates that the Company is slowly recovering; however, it also indicates that the Company will not be able to meet the minimum funding standard until at least 2010. Because the business hardship is not temporary and the Company can not make contributions sufficient to cover the funding requirements of the Plan, your request for a waiver of the minimum funding standard for the plan year ending June 30, , has been denied.

2 200642008

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 June 30, , and June 30, . You should file a Form 5330 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

Sincerely yours,

Donna M. Prestia, Manager
Employee Plans Actuarial Group 2