PLR 200826042: Bankruptcy reorganization deadline extended for pension funding waiver

Plain-English summary

A company in chapter 11 sought another modification of its conditional minimum funding waiver for an hourly pension plan. Its exit financing was taking longer than expected, and missing the prior reorganization deadline would void the waiver retroactively. The IRS approved replacement conditions extending the effective date of the reorganization to May 9, 2008, while requiring a replacement letter of credit by April 18. If any waiver condition is missed, the waiver becomes retroactively void. The letter also warns that benefit increases or new plans while the waived deficiency remains unamortized may have consequences under § 412(f).

Ruling snapshot

• Question: May the company amend the waiver conditions to allow more time for its bankruptcy reorganization?
• Outcome: Approved, subject to the replacement conditions and retroactive nullification for breach.
• Key authorities: IRC § 412(d), (f); ERISA §§ 303, 304(b).

Full text (IRS public release)

Significant Index No. 0412.06-00
200826042

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

APR 04 2008
Re:
Company =

Former Parent =

Salaried Plan =
Bankruptcy Court =

Plan of Reorganization =

Dear

This letter constitutes notice that the Company's request for a modification of the conditional waiver of the minimum funding standard for the Hourly Plan for the plan year ending September 30, that was granted in a ruling letter dated May 1, 2007, and modified by ruling letters dated July 13, 2007, October 4, 2007, February 27, 2008, and March 28, 2008, has been approved. Accordingly, conditions (3) and (9) of the funding waiver, as modified, are replaced with the following conditions:

(3) By April 18, 2008, the Company replaces the current letter of credit with a letter of credit in favor of the Hourly Plan from a financial institution acceptable

to the in the amount of
$ _ If the Company fails to meet any one of the conditions under which this funding waiver has been granted, the may draw upon this

letter of credit for the benefit of the Hourly Plan at anytime thereafter. This letter of credit shall expire on the earlier of (i) the date that condition (5)(i) is satisfied, or (ii) May 23, 2008.

(9) The effective date of the Plan of Reorganization is no later than May 9, 2008.

200826042

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If any one of the conditions of the funding waiver, as modified, is not met, the waiver for the plan year ending September 30, , is retroactively null and void.

On , 2008, the Company announced that it was taking the steps necessary to enable the completion of its exit financing syndication. Furthermore, the Former Parent has advised the Company that it is prepared to provide additional exit financing. The Company believes that the Former Parent's increased participation in the exit financing structure is necessary to successfully syndicate its exit financing on a timely basis and is consistent with the Plan of Reorganization. In connection with the re-launch of its exit financing syndication, The Company's lead investor agreed to extend from

', 2008, to , 2008, the first date by which it could terminate the investment agreement with if the effective date of the Plan of Reorganization has not occurred in order to provide the Company additional time to comply with closing conditions under the investment agreement.

The Company has represented that the funding waivers that the Salaried and Hourly Plans have received are critical to the implementation of the Plan of Reorganization. If the modifications that the Company has requested are not approved, the waivers would be rendered retroactively null and void if the Company does not emerge from

chapter 11 bankruptcy protection on or before April 7, 2008. The modifications agreed to by the Company will extend the deadline for the Company's emergence from

chapter 11 bankruptcy protection to May 9, 2008. In consideration of this extension, the Company will (a) replace certain letters of credit that it has provided to the Salaried Plan and the Hourly Plan as a condition of the funding waivers each Plan received for the plan years ending September 30, , and (b) increase the value of the letter of credit held by the Hourly Plan by $ , by April 18, 2008.

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, 2006.

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.

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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 and to your
authorized representative pursuant to a power of attorney on file in this office. We suggest that you furnish a copy of this letter to the enrolled actuary who is responsible for the completion of the Schedule B.

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

Michael D. Julianelle
Director, Employee Plans