PLR 200701035: Pension plan denied more time to fund liabilities because benefit cuts are not imminent

Plain-English summary

A defined benefit pension plan jointly sponsored by a union and industry employers requested more time to amortize its unfunded liabilities for the plan year ending April 1, 2004. Section 412(e) permits an extension when specified risks to the plan or benefits and harm to participants justify relief. The plan projected a minimum funding deficiency by April 1, 2010, which the ruling described as four years away. The IRS found that substantial benefit cuts were not imminent and the plan’s continuation was not substantially at risk in the foreseeable future. It denied the requested extension.

Ruling snapshot

• Question: Can a pension plan extend amortization of unfunded liabilities when a projected funding deficiency is several years away?
• Outcome: Denied: substantial benefit cuts and risks to the plan’s continuation were not sufficiently imminent.
• Key authorities: IRC §§ 412(b)(2)(B), 412(e), 6110(k)(3); ERISA §§ 302(b)(2)(B), 304(a); Reorganization Plan No. 4 of 1978, § 101.

Full text (IRS public release)

Significant Index No 0412.00-00

DEPARTMENT OF THE TREASURY
200701035

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND

GOVERNMENT ENTITIES

DIVISION

OCT 12 2006
T:EP:RA:T:A2

Re:

Union =
Industry =

This letter constitutes notice that your request for an extension of the amortization period for unfunded liabilities described in section 412(b)(2)(B) of the Internal Revenue Code (“Code”) and section 302(b)(2)(B) of the Employee Retirement Income Security Act of 1974 (“ERISA”), for the above-named plan for the plan year ending April 1, 2004, has been denied.

Section 412(e) of the Code and section 304(a) of ERISA authorize the Secretary to extend the period of time required to amortize any unfunded liability (described in section 412(b)(2)(B) of the Code and section 302(b)(2)(B) of ERISA) of a plan for a period of time (not in excess of 10 years) if the Secretary determines that such extension would carry out the purposes of ERISA and would provide adequate protection for participants under the plan and their beneficiaries and if the Secretary determines that the failure to permit such extension would (1) result in (A) a substantial risk to the voluntary continuation of the plan, or (B) a substantial curtailment of pension benefit levels or employee compensation, and (2) be adverse to the interests of plan participants in the aggregate.

Section 101 of Reorganization Plan No. 4 of 1978, 1979-1 C.B. 480, transferred the authority for issuing rulings under section 304(a) of ERISA from the Secretary of Labor to the Secretary of the Treasury.

The Plan is a defined benefit plan, jointly sponsored by the Union and employers in the Industry.

200701035

2

As of April 1, 2004, the Plan was projected to have a minimum funding deficiency by April 1, 2010. Since the funding deficiency is not projected to occur for another four years, a substantial curtailment of pension benefits levels is not absolutely necessary at this time. Furthermore, there is not a substantial risk to the voluntary continuation of the plan. Because a substantial curtailment of benefits is not imminent and the continuation of the Plan is not substantially at risk in the foreseeable future, the extension of the amortization period for unfunded liabilities has been denied.

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,

Frances V Sloan
for

James E. Holland, Jr., Manager
Employee Plans Technical