PLR 201136033: IRS approves a conditional minimum-funding waiver

Plain-English summary

The IRS approved a conditional waiver of a plan's required minimum funding contribution for a plan year ending September 30, 2009. The waiver required timely quarterly contributions, later contributions sufficient to meet minimum funding requirements, restrictions on increasing plan benefits or liabilities, and proof of payment to the Service. The IRS described the company's temporary business hardship, including a decline in the steel industry, reduced customer base, investments that reduced cash flow, and a loss in plan asset value. The letter stated that the waiver would be retroactively null and void if any condition was not satisfied.

Ruling snapshot

• Question: Whether the plan qualified for a waiver of the minimum funding standard.
• Outcome: Approved, subject to conditions.
• Key authorities: IRC §§ 412(c), 412(c)(1)(C), 412(c)(7), 430(j)(3)(D), and 430(j)(3)(E); ERISA §§ 302(c)(7), 303; IRC § 6110(k)(3).

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUN 16 2011
201136033

Significant Index Number: 412.06-00

SE:T:EP:RA:T2

In re: Request for Waiver of the Minimum Funding Standard for **

EIN: ***

Company = ***

Plan = *******

Dear ***,

This letter constitutes notice that a waiver of the required minimum funding contribution for the Plan for the plan year ending September 30, 20__ has been approved subject to the conditions listed below. This waiver is for the required minimum contribution for the above listed plan year: all waiver amortization payments representing this waiver still must be paid as stated in section 412(c)(1)(C) of the Code:

1. Starting with the contribution due on October 15, 20__, 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;

2. Company makes contributions to the Plan in amounts sufficient to meet the
   minimum funding requirements for the Plan for the plan years ending September 30, 20__ through 20__, by June 15, 20__ through 20__, respectively;

3. Under section 412(c)(7) of the Code, Company is restricted from amending the
   Plan to increase benefits or plan liabilities while any portion of the waived funding deficiency remains unamortized;

4. Company provides proof of payment of all contributions described above in a
   timely manner to the Service using the fax numbers or addresses below:

IRS - EP Classification

Fax: ****

If any one of these conditions is not satisfied, the waivers are retroactively null and void.

This conditional waiver has been granted in accordance with section 412(c) of the Internal Revenue Code and section 303 of the Employee Retirement Income Security Act of 1974 ("ERISA"). The amount for which this conditional waiver has been granted is the contribution that would otherwise be required to reduce the balance in the funding standard account to zero as of the September 30, 20__ plan year.

The Company is a distributor of industrial products
throughout the Midwestern United States. It also manufactures and other machine parts. It has suffered a temporary substantial business hardship due to problems arising from the overall decline in the steel industry over the previous 10 to 12 years, which reduced Company's customer base. It has also made significant investments in the services that it provides, which temporarily reduced Company's net income and cash flows.

The Company has executed a strategy to reduce expenses and raise additional revenue to improve the financial health of the organization. Its financial projections show that it will likely generate increasing profits in future years. The Plan has suffered a dramatic loss in asset value during the plan year at issue due to the decline in the equity markets, creating a funding obligation that did not exist in the previous years. The Company believes, and its financial projections illustrate, that its cash flows will improve adequately to satisfy the Plan's funding obligation in the near future.

Your attention is called to section 412(c)(7) of the Code and section 302(c)(7) 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 plans (covering employees covered by this plan) maintained by the Company, to increase, or any action by the Company or its authorized agents or designees (such as a Board of Directors or Board of Trustees) that has the effect of increasing the liabilities of those plans would be considered an amendment for purposes of section 412(c) of the Code and section 302(c)(7) 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 302(c)(7) of ERISA.

201136033

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, 2009, the date of this letter should be entered on Schedule SB (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 SB.

We have sent a copy of this letter to the Manager, EP Classification in Baltimore, Maryland, and to the Manager, EP Compliance Unit in Chicago, Illinois.

If you require further assistance in this matter, please contact *** * at () -*.

Sincerely,

William Hulteng, Manager
Employee Plans Technical

CC: