PLR 200740022: IRS modified conditions of pension funding waiver

Plain-English summary

A company in Chapter 11 asked the IRS to change conditions attached to an earlier waiver of minimum pension funding requirements. The IRS approved replacing three conditions. The revised terms required a reorganization plan consistent with the waiver, contributions to the hourly plan to reach a specified projected funding level, and an effective reorganization date by a redacted deadline. The letter also warned about restrictions on increasing retirement plan benefits while the waived funding deficiency remained unamortized. The scan's heading names a salaried plan, while the revised conditions refer to an hourly plan.

Ruling snapshot

• Question: Could the company modify three conditions of its previously granted funding waiver?
• Outcome: Yes, subject to the revised filing, contribution, and timing conditions.
• Key authorities: IRC §§ 412(d), 412(f), 414(l); ERISA §§ 303, 304(b).

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

JUL 13 2007

T:EP:RA:A2

Number: 200740022
Release Date: 10/5/2007

Re:
Salaried Plan =
Company =
Former Parent =
Dear

This letter constitutes notice that the Company's request for a modification of the conditional waiver of the minimum funding standard for the Plan for the plan year ending September 30, , that was granted in a ruling letter dated May 1, 2007, has been approved. Accordingly, conditions (1), (5), and (9).of the funding waiver are replaced with the following conditions:

(1) No later than , the Company files a plan of reorganization with the bankruptcy court providing for continuation of the Hourly Plan, compliance with the conditions of this waiver, and providing for the combination of transfers under section 414(l) of the Internal Revenue Code (“Code”) and cash contributions described below. The Company will not seek approval of a plan of reorganization which is inconsistent with the conditions of this waiver.

(5) Not later than the effective date of the Company's plan of reorganization under Chapter 11, the Company makes contributions to the Hourly Plan in an amount sufficient to result in a projected funded current liability percentage as of the effective date of the Company's plan of reorganization under Chapter 11, when measured reflecting such contributions and the projected impact of the section 414(l) transfer, that is the same funded current liability percentage that would have been projected as of the effective date of the Company’s plan of reorganization under Chapter 11, if (a) the funding waiver had not been granted, (b) the section 414(l) transfer did not occur, and (c) a

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contribution was made on the effective date of the Company’s reorganization under Chapter 11 equal to the accumulated Employee Retirement Income Security Act of 1974 (“ERISA”) funding deficiency projected to the effective date of the reorganization.

(9) The effective date of the Company's plan of reorganization is no later than

This conditional waiver has been granted in accordance with section 412(d) of the Code and section 303 of ERISA. The amount for which this conditional waiver has been granted is equal to the contributions that would otherwise be required to reduce the balance in the funding standard account to zero as of September 30,

Based on information submitted by the Company, he Company has reached agreement with the one of the unions representing certain of its employees concerning a contract that will allow the Company to exit bankruptcy. However, it is now anticipated that additional time is needed to work out a plan or reorganization due to competition between capital funds.

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 Hourly 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 the Hourly 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 the Hourly 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 September 30, , the date of this letter should be entered on Schedule B (Actuarial Information). For this reason, we suggest that you furnish a copy of this letter to the enrolled actuary who is responsible for the completion of the Schedule B.

We have sent a copy of this letter to the
, to the and to your

authorized representative pursuant to a power of attorney on file in this office.

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

Sincerely yours,

Joseph H. Grant, Director
Employee Plans