Denial 200713027: Pension plan denied extra time to amortize unfunded liabilities

Plain-English summary

A multiemployer defined benefit pension plan requested more time to amortize its unfunded liabilities. An earlier projection had shown a future funding deficiency. A later actuarial valuation showed no projected deficiency if the plan used a five-year extension available under the Pension Protection Act of 2006 and combined its credit bases. The IRS denied the requested extension because it would not carry out a purpose of ERISA on those facts.

Ruling snapshot

• Question: Should the plan receive an extension of its amortization period for unfunded liabilities?
• Outcome: Denied; the later valuation projected no funding deficiency under the described conditions.
• Key authorities: IRC §§ 412(b)(2)(B), 412(e); ERISA §§ 302(b)(2)(B), 304(a).

Full text (IRS public release)

Significant Index No. 0412.00-00
200713027

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JAN 03 2007

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, has been denied.

Section 412(e) of the Code and section 304(a) of ERISA authorize the extension of 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 multiemployer defined benefit plan, jointly sponsored by the Union and employers in the Industry.

200713027

2

As of April 1, 2004, the Plan was projected to have a minimum funding deficiency by April 1, 2008. However, the results of the April 1, 2006, actuarial valuation for the Plan show that, if the Plan avails itself of the 5-year extension for the amortization of charge bases under the Pension Protection Act of 2006 (“PPA”) and if the credit bases are combined, no funding deficiency is projected. Accordingly, the extension would not carry out any purpose of ERISA. Therefore, 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,

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