PLR 200705035: Pension funding waiver denied after planned distress termination

Plain-English summary

A company requested a waiver of its pension plan's minimum funding standard for the year ending December 31, 2005. After a tentative denial and conference, the IRS sought revised actuarial information and a payment schedule for continued funding. The company then reported that its financial condition would lead it to seek a distress termination of the plan. The IRS denied the waiver because it could not reasonably assume that granting it would allow the plan to continue. The letter also stated that section 4971(a) excise taxes were due on the plan's accumulated funding deficiencies for 2004 and 2005 and directed the company to report and pay them on Form 5330.

Ruling snapshot

• Question: Should the pension plan receive a minimum funding waiver despite its planned distress termination?
• Outcome: Denied.
• Key authorities: IRC §§ 412, 4971(a).

Full text (IRS public release)

Significant Index No. 0412.06-00

200705035

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEC 05, 2006

T:EP:RA:T:A2

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 December 31, 2005, has

been denied.
The Company is involved in The current financial
hardship was brought about by the loss of two major which

depleted the Company’s working capital, and resulted in a loss of bonding which forced the Company to enter a different

You were notified in a letter dated October 6, 2006, that your request had been tentatively denied. A conference of right was held on October 30, 2006. At the time, a decision was made to obtain a revised actuarial valuation using an acceptable funding method and actuarial assumptions; then to await your review of the 5-year financial projection that was earlier submitted, and your submission of a monthly payment schedule that would fund the Plan ongoing, assuming the waiver was to be granted.

In a letter dated November 17, 2006, you stated that, based on your current financial condition, the Company would be filing for a distress termination of this Plan. Because it is unreasonable to assume that the Plan will continue only if a funding waiver is

granted, your request for a waiver of the minimum funding standard for the plan year ending December 31, 2005, has 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, 2004, and December 31, 2005. You should file a Form 5330 as soon as possible to report and pay the taxes.

200705035

2

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

If you require further assistance in this matter, please contact :

Sincerely yours,

Donna M. Prestia
by Anthony Montemarano

Donna M. Prestia, Manager
Employee Plans Actuarial Group 2