PLR 200738030: Multiemployer pension plan denied more time to amortize liabilities

Plain-English summary

A multiemployer defined benefit pension plan asked the IRS to extend the period for amortizing unfunded liabilities. The IRS denied the request under section 412(e). The plan's funding position had improved after a merger, and projections made before the merger showed no funding deficiency until the end of the 2008 plan year. The IRS therefore concluded that an extension was not needed to carry out ERISA's purposes and that denial did not pose a substantial risk to the plan's voluntary continuation. It noted that the Pension Protection Act of 2006 might offer other relief if needed later.

Ruling snapshot

• Question: Should the plan receive an extension to amortize unfunded liabilities?
• Outcome: No; the IRS denied the requested extension.
• Key authorities: IRC § 412(e); ERISA § 302(b)(2)(B).

Full text (IRS public release)

Significant Index No. 0412.06-00
Third Party Contact – Plan Participants
200738030

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUN 29 2007

Re:

Union =

Dear

This letter is to inform you that, with respect to the above-named Plan, your request for an extension for amortizing the 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”) effective with the plan year beginning January 1, has been denied.

Section 412(e) provides that the period of years required to amortize any unfunded liability of any plan may be extended for a period of time (not in excess of 10 years) if it is determined that such extension would carry out the purposes of the Employee Retirement Income Security Act of 1974 and would provide adequate protection for participants under the plan and their beneficiaries and if it is determined that the failure

to permit such extension would: (1) result in a substantial risk to the voluntary continuation of the plan, or a substantial curtailment of pension benefit levels or employee compensation; and (2) be adverse to the interests of plan participants in the aggregate.

The funded status of the Plan, which is a multiemployer defined benefit Plan, has improved as a result of its recent merger with another plan. Also, projections prior to the merger showed that the Plan was not expected to experience a funding deficiency until the end of the 2008 plan year, after substantial changes in the minimum funding requirements under the Pension Protection Act of 2006 (“PPA 2006”) would take effect. The effect of these changes in the funding rules on the Plan’s funding requirements is not yet known, but PPA 2006 also provides additional avenues to obtain relief through the extension of amortization periods, if such relief is needed at that time. Because there

200738030

is no projected funding deficiency for several years, an extension for would not carry out the purposes of ERISA. Furthermore, failure to permit an extension for

does not pose a substantial risk to the voluntary continuation of the plan. Accordingly, the request for extension of the amortization period has been denied.

You were notified in a letter dated May 3, 2007, that your request for an extension of the period to amortize the Plan’s unfunded liabilities had been tentatively denied. This letter also informed you of your right to a conference to review this decision and present any additional information that you believed the Service should take into account before finalizing this ruling. Your authorized representative declined the opportunity for this conference in a telephone conversation with of this office on

June 11, 2007.

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,
. Manager, 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