Waiver 200713025: Pension funding waiver granted with contribution conditions

Plain-English summary

An organization sought relief from its pension plan's minimum funding standard for the plan year ending December 31, 2005. It reported falling revenue after losing more than 100,000 members during a weak local economy. The IRS granted a conditional waiver after the organization agreed to make specified contributions, meet future funding standards, and provide proof of payments. Failure to satisfy any condition would make the waiver retroactively void. The letter also warned about limits on benefit increases while the waived funding deficiency remained unamortized.

Ruling snapshot

• Question: Could the plan receive a waiver of its minimum funding standard?
• Outcome: Approved conditionally; missed conditions would void the waiver retroactively.
• Key authorities: IRC §§ 412(d), 412(f); ERISA §§ 303, 304(b).

Full text (IRS public release)

Significant Index No. 0412.06-00
200713025

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JAN 03 2007

In re:

Company =

This letter constitutes notice that a waiver of the minimum funding standard for the Plan for the plan year ending December 31, 2005, has been granted subject to the following conditions:

(1) 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

(2) 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

(3) The Company makes contributions to the Plan in amounts sufficient to meet the minimum funding standard for the Plan for the plan years ending
and by and respectively
(without applying for a waiver of the minimum funding standard);

(4) The Company may pre-fund the contributions described in conditions (1) through (3); and

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(5) 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 letter dated December 4, 2006, sent via facsimile. 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 zero as of December 31, 2005.

The Company's primary business is to secure state legislation that will safeguard and promote the principles of free collective bargaining, and the rights of and consumers. The Company derives most of its income with a per capita tax based upon the number of members who are working. The local economy has been in near recession, causing the bankruptcy of many employers and the closing of facilities, causing the Company to lose over 100,000 members. The reduction in members has resulted in smaller operating revenue.

The Company's operating revenues have declined from $ in the fiscal year ending February 28, , to $ in the fiscal year ending February 28,
. There is a gain in the operating revenue to $ if you project the amount in the
short fiscal year from March 1, , to December 31, over a 12 month period. The Company had significant losses in the fiscal years ending and
. The fiscal year ending
showed a small profit.

In order to effect a recovery, the Company has increased the per capita tax that is
charged to each member by
The Company expects improving economic
conditions to increase membership. However, according to the information submitted in the request, the Company has yet to realize a significant increase in membership. The Company is exploring the possibility of transferring its real estate holding into the Plan. Currently the Company is in the process of having a qualified independent fiduciary review of appraisal on the building before submitting a request to the Department of Labor.

While the Plan was only funded % on a current liability basis as of the Company has shown its determination to fund the Plan by agreeing to make the

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payments as described in the conditions of this waiver. Hence, the waiver of the minimum funding standard for the plan year ending December 31, 2005, 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 December 31, 2005, the date of this letter should be entered on Schedule B (Actuarial Information).

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