PLR 200651039: Pension funding waiver granted with collateral and contribution conditions

Plain-English summary

A company sought a pension plan minimum funding waiver after increased insurance costs and an industry pricing war caused losses. The IRS found that improving profits and a realistic contribution schedule supported treating the hardship as temporary. It granted a conditional waiver under section 412(d). The company must provide PBGC-acceptable collateral covering the waiver and potential lien, make specified contributions, meet later minimum funding requirements without waivers, and provide payment proof within 30 days. Failure to satisfy any condition makes the waiver retroactively void. The letter also identifies restrictions affecting benefit increases and other retirement plan changes while the waived deficiency remains unamortized.

Ruling snapshot

• Question: May the company obtain a minimum pension funding waiver for its temporary financial hardship?
• Outcome: Approved, subject to collateral, scheduled contributions, reporting, and later funding conditions.
• Key authorities: IRC § 412(d), (f), (n); ERISA §§ 303, 304(b).

Full text (IRS public release)

Significant Index No. 0412.06-00
200651039

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

SEP 29 2006

In re:

EIN:
Company =

This letter constitutes notice that a waiver of the minimum funding standard for the Plan for the plan year ending , has been granted subject to the following

conditions:

1. Collateral acceptable to the PBGC be provided to the Plan for the full amount of
   the waiver, plus the amount of the lien that can be imposed on the Company from section 412(n) of the Internal Revenue Code (Code), by the later of (a) 120 days from the date of the ruling letter or (b) the earlier of (i) the date the PBGC notifies the Service in writing that this condition has not been met or (ii) 360 days from the date of the ruling letter;

2. The Company provides to the PBGC a copy of any ruling requests it makes
   under section 412(f)(1) of the Code;

3. The Company makes contributions to the Plan in the amount of by the

following dates:
and

These contributions will be applied to meet the minimum funding standard of the Plan for the plan year ending .

4. The Company makes contributions to the Plan in the amount of by the
   following dates: and These
   contributions will be applied to meet the minimum funding standard of the Plan

for the plan year ending .

200651039

5. The Company makes contributions to the Plan in amounts sufficient to meet the
   minimum funding standard for the Plan for the plan years ending respectively

(without applying for a waiver of the minimum funding standard), and

6. The Company provides proof of payment of all contributions described above

within 30 days from the date of the contribution to of this office, by facsimile at or to the following address: You agreed to these conditions in facsimile dated ; If any one of

these conditions is not satisfied, the waiver is retroactively null and void.

This conditional waiver 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 amount for which this conditional waiver has been granted is the contribution that would otherwise be required to reduce the balance in the funding standard account to as of

The Company is a which operates in eleven
The Company has had losses in and due primarily due to dramatically increased insurance costs incurred by the Company after the events of and a pricing war within the Company's industry in 2002 and 2003, caused by excess capacity in the marketplace for the amount of shipments being hauled.

The pricing war forced a number of the Company’s competitors out of business. As a result, there are now fewer carriers in the marketplace. This has allowed the Company to increase the number of shipments it handles, as well as increase prices. While increased fuel prices have had an impact, the Company has been able add a surcharge in order to lessen the impact. Excess capacity at most of its locations will allow the Company to grow without having to change or upsize its facilities. The Company has shown a small profit for 2003, and increasing profits for 2004, and 2005, which indicates that the Company's hardship was in fact temporary.

The Plan is poorly funded on a current liability basis. However, the Company has shown its determination to fund the Plan by meeting the minimum funding requirement for the plan year ending and by committing to a realistic schedule of payments that will allow the Company to meet the minimum funding requirements for the plan years ending and . Hence, the waiver

200651039

of the minimum funding standard for the plan year ending , has been granted subject to the conditions stated above.

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 a profit sharing plan or any other retirement plans (covering employees covered by this plan) maintained by the Company, 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. Similarly, the establishment of a new profit sharing plan or any other retirement plan by the Company (covering employees covered by this plan) 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 year ending the date of this letter should be entered on Schedule B (Actuarial Information). For this reason, we suggest that you furnish a copy of this letter to the enrolled actuary who is responsible for the completion of the Schedule B.

We have sent a copy of this letter to the Manager, EP Classification in and to the Manager, EP Compliance Unit in

If you require further assistance in this matter, please contact

Sincerely yours,

Carol D. Gold, Director
Employee Plans