Written determination 200934047: Conditional minimum-funding waivers granted

Plain-English summary

The IRS granted a company's requests for a waiver of the minimum funding standard and a modification of an earlier conditional waiver for its pension plan. The waivers were conditioned on providing collateral, making timely contributions, meeting later minimum-funding requirements, and providing proof of payment. The letter states that the company's business hardship appeared temporary, but the plan was only 70.99 percent funded on a current-liability basis. If any condition is not met, the waiver becomes retroactively null and void.

Ruling snapshot

• Question: Can the company receive conditional waivers of the pension plan's minimum funding standard?
• Outcome: Approved, subject to the stated conditions
• Key authorities: IRC §§ 412, 430, and 4971; ERISA §§ 303 and 304(b); IRC § 6110(k)(3)

Full text (IRS public release)

Significant Index No. 4971.02-00

200934047

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

MAY 27 2009

T:EP:RA:AZ

Re:

EIN:

Company =

Dear

This letter constitutes notice that your requests for (a) a waiver of the minimum funding standard for the Plan for the plan year ending July 31, 20[illegible] and (b) a modification of the conditional waiver of the minimum funding standard for the Plan for the plan year ending July 31, 20[illegible], that was granted in a ruling letter dated February 28, 2006, have been granted subject to the following conditions:

(1) Collateral acceptable to the Pension Benefit Guaranty Corporation (“PBGC”) be provided to the Plan for the full amount of the waiver by the later of (a) 120 days from the date of the ruling letter or (b) the earlier of (i) the date the PBGC notifies the Service in writing that this condition has not been met or (ii) 360 days from the date of the ruling letter;

(2) The Company provides to the PBGC a copy of any ruling request it makes under section 412(c)(7)(B) of the Internal Revenue Code (“Code”) (formerly section 412(f)(1) of the Code);

(3) Starting with the quarterly contribution due on May 15, 2009, the Company makes the required quarterly contributions to the Plan in a timely fashion while the Plan is subject to a waiver of the minimum funding standard. For this purpose, the total amount of each quarterly contribution will be determined in accordance with section 430(j)(3)(D) and section 430(j)(3)(E) of the Code, and can be comprised of several installments made prior to the respective due date of the quarterly contribution;

(4) The Company makes contributions to the Plan in amounts sufficient to (a) meet the minimum funding requirements for the Plan for the plan years ending July 31, 20[illegible] through 20[illegible] by April 15, 20[illegible] through 20[illegible], respectively (without applying for a waiver of the minimum funding standard);

(5) The Company provides proof of payment of all contributions described above to the Service and to the PBGC using the fax numbers or addresses below.

Information must be provided to both [illegible] of the Service and to [illegible] of the PBGC (or other individuals designated by the respective agencies), using the addresses or fax numbers below:

Internal Revenue Service
EP Classification
1100 Commerce St. 4923 DAL
Dallas, TX 75242
Fax: 214-413-5507

Pension Benefit Guaranty Corporation
DISC
1200 K Street, N.W.
Washington, DC 20005
Fax: (202) 842-2643

You agreed to these conditions in a letter dated April 29, 2009. If any one of these conditions is not met, the waiver will be retroactively null and void.

The conditional waivers of the minimum funding standard have been granted in accordance with section 412(d) of the Internal Revenue Code and section 303 of the Employee Retirement Income Security Act of 1974 (“ERISA”). The amount for which the conditional waivers have been granted is the contribution that would otherwise be required to reduce the balance in the funding standard account to zero as of July 31, 2005, and July 31, 2007.

The Company is located in [illegible]. The Company designs and builds specialized automated machinery that includes metal forming, welding and joining processes as well as automated assembly machines for the capital goods industry.

The information provided by the Company in the initial request for a waiver indicated that actual revenues were lagging significantly behind projected revenues as of July 31, 20[illegible]. However, the Company subsequently provided additional information which included audited financial information for the fiscal year ending October 31, 20[illegible], as well as projected financial information through the fiscal year ending October 31, 20[illegible]. Actual revenue for the fiscal year ending in 20[illegible] exceeded the Company’s earlier projections. The cash flow projection for the fiscal year ending in 20[illegible] reflected a significant increase in committed orders and a decrease in anticipated orders. The increase in committed orders means actual revenue for the Company during the fiscal year ending in 20[illegible] instead of potential revenue where orders are anticipated.

The projections of 5-year cash flows provided by the Company indicate that the Company’s business hardship is temporary. The actual performance of the Company during the fiscal year ending in 20[illegible] indicates that the Company is recovering and that the business hardship should only be temporary. However, because the plan is only 70.99% funded on a current liability basis, the requests for (a) a waiver of the minimum funding standard for the Plan for the plan year ending July 31, 20[illegible] and (b) a modification of the conditional waiver of the minimum funding standard for the Plan for the plan year ending July 31, 20[illegible] have been granted subject to the conditions described above.

Your attention is called to section 412(c)(7) of the Code and section 304(b) of ERISA which describe the consequences that would result in the event the 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 plan (covering employees covered by this Plan) maintained by the Company, to increase the liabilities of those plans would be considered an amendment for purposes of section 412(c)(7) 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 this Plan) would be considered an amendment for purposes of section 412(c)(7) 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 July 31, 20[illegible] 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 [illegible] to the [illegible] and to your authorized representative pursuant to a power of attorney on file in this office.

If you have any questions concerning this matter, please contact [illegible].

Sincerely yours,

Andrew E. Zuckerman, Director
Employee Plans Rulings & Agreements