PLR 200644023: Pension excise tax waived if distress termination is approved

Plain-English summary

A company withdrew its request for a waiver of the pension plan's minimum funding standard for the 2005 plan year. The IRS closed that request and conditionally waived the 100 percent excise tax under section 4971(b) on the plan's uncorrected accumulated funding deficiency. The tax waiver depended on approval of the company's pending application to the PBGC for a distress termination of the plan. If the application was denied, the company could ask the IRS to reopen the withdrawn funding waiver request. The company described sustained losses in its electrical insulator business as the reason for the plan's distress.

Ruling snapshot

• Question: What relief applies after the company withdrew its funding waiver request and sought a distress termination?
• Outcome: Funding waiver request closed; 100 percent excise tax waived conditionally.
• Key authorities: IRC § 4971(b); ERISA § 3002(b).

Full text (IRS public release)

Significant Index No. 4971.02-00

200644023

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

AUG 01 2006
T:EP:RA:T:A2

Re:

Company =

This letter constitutes notice that pursuant to your request of July 7, 2006:

1. Your request for a waiver of the minimum funding standard for the above-named
   plan for the plan year ending December 31, 2005, has been withdrawn, and the case has been closed by this office.

2. A waiver of the 100 percent tax under § 4971(b) of the Internal Revenue Code
   (“Code”) has been granted for the above-named plan for the plan year ending December 31, 2005, on the condition that the Company’s application to the PBGC for a distress termination of the Plan is approved. If the distress termination application is not approved, the Company may request that the request for a waiver of the minimum funding standard for the plan year ending December 31, 2005, that has been withdrawn, be re-opened for consideration.

The conditional waiver of the 100 percent tax has been granted in accordance with section 3002(b) of the Employee Retirement Income Security Act (“ERISA”). The amount for which the conditional waiver has been granted is equal to 100 percent of the accumulated funding deficiency in the funding standard account as of

December 31, 2005, the end of the plan year for which the waiver has been granted, to the extent such funding deficiency has not been corrected.

200644023

The Company is engaged in the design, manufacture and sale of electrical porcelain insulators for distribution, transmission, station, and specialty applications to the electrical utility industry. The Company has incurred significant losses in the past 5 years as the result of an industry wide recession following 9/11, the rapid and aggressive success of imports into distribution voltage products, and a price war for market share between producers of substation post-type insulators. A request has been filed with the PBGC to effect a distress termination of the Plan. This request is still pending.

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