IRS 200732029: Pension plan funding waiver denied

Plain-English summary

A health care company sought a waiver of its pension plan's minimum funding requirement because it had sustained large losses and could not restructure its debt. The IRS recognized substantial business hardship but found that it was not temporary. The company also could not show that it would meet future plan funding costs even with a waiver. The IRS denied the request and advised the company to report and pay excise taxes on accumulated funding deficiencies.

Ruling snapshot

• Question: Did the company's financial hardship justify waiving a pension plan funding requirement?
• Outcome: Denied because the hardship was not temporary and the plan's future funding remained doubtful.
• Key authorities: IRC §§ 412, 4971(a).

Full text (IRS public release)

Significant Index No. 0412.06-00

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

TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION

MAY 15 2007

Release Number: 200732029
Release Date: 8/10/2007

T:EP:RA:T2

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 health care industry. The current financial hardship _ was brought about in large part by the level of Medicare/Medicaid reimbursements, the presence of two labor unions within the facility, and existing bond covenants and undesirable interest rates currently available in the market. This has led to accumulated losses in excess of since , with losses projected to continue into the foreseeable future. The Company has pursued offers from prospective buyers, but the mounting losses, the pension liabilities, and outstanding debt have made the Company undesirable. The Company has also tried to restructure its debt, but has been unable to

do so.

You were notified in a letter dated February 9, 2007, that your request had been tentatively denied. A conference of right was held on . At the time, the Company agreed with our preliminary determination that while its business hardship was substantial, it was not temporary. Furthermore, even if the funding waiver were granted, the Company would not be able to make periodic payments to the Plan sufficient to cover both the amortization payments on the funding waiver plus the future

ongoing cost of the Plan.

2 200732029

In a letter dated April 25, 2007, you stated that the Company does not wish to withdraw its application for the funding waiver. Because the nature of the Company's hardship is not temporary, the Company is unable to satisfy future minimum funding requirements, and 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 , 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 ; , and . You should

file a Form 5330 as soon as possible to report and pay the taxes.

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
to the If you require

further assistance in this matter, please contact

Sincerely yours,

Joseph H. Grant, Director
Employee Plans