PLR 201203035: IRS approves a conditional waiver of a pension plan's minimum funding standard

Plain-English summary

The IRS approved a conditional waiver of the minimum funding standard for a pension plan for the plan year ending December 31, 2011. The company had divested business operations during a downturn while retaining most of its pension obligations, and the waiver amount covered the contribution otherwise needed to reduce the funding standard account to zero. The waiver required collateral, timely quarterly contributions, future minimum funding, and proof of payment to the IRS and the Pension Benefit Guaranty Corporation. The waiver would be retroactively null and void if any condition was not satisfied.

Ruling snapshot

• Question: Whether the company could receive a conditional waiver of the minimum funding standard for the plan year ending December 31, 2011.
• Outcome: approved
• Key authorities: IRC §§ 412, 430, and 6110; ERISA §§ 303 and 304(b).

Full text (IRS public release)

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

DEPARTMENT OF THE TREASURY
201203035

TAX EXEMPT AND
OCT 27 2011
GOVERNMENT ENTITIES
DIVISION

Significant Index Number: 412.06-00

In re: Request for Waiver of the Minimum Funding Standard for **** (**) EIN: *
Company = **
Plan = ******

Dear ****:

This letter constitutes notice that a waiver of the minimum funding standard for the Plan, for the plan year ending December 31, 2011, has been approved subject to the following conditions:

1. Within 120 days of the date of the final favorable waiver letter, the Company will
   provide collateral acceptable to the Pension Benefit Guaranty Corporation
   (PBGC) for the full amount of the 2011 Plan year waiver.

2. Starting with the quarterly contribution due on April 15, 2012, 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. Until full amortization of the waived amount, the
   Company will provide verification of each quarterly contribution to PBGC within
   five business days of the payment.

3. The Company makes contributions to the Plan in amounts sufficient to meet the
   minimum funding requirements for the Plan for the plan years ending December
   31, 2012, through 2016, and provide verification of each quarterly contribution to
   PBGC within five business days of the payment.

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4. Under section 412(c)(7) of the Code, the Company is restricted from amending
   the Plan to increase benefits and/or Plan liabilities while any portion of the
   waived funding deficiency remains unamortized, with only certain exception as
   defined in section 412(c)(7)(B). The Company will copy PBGC on any
   correspondence with the IRS regarding notification or application for such an
   exception.

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

IRS - EP Classification

Fax: ******

Pension Benefit Guaranty Corporation

Fax: ******

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

This conditional waiver has 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 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 December 31, 2011.

The Company is a global provider of digital power control systems. To address a business downturn, the Company divested itself of various business operations but retained most of its pension obligations. The Company has no other significant debt and it expects to return to profitability once the economy improves, and has demonstrated that it is able to fund the Plan on an ongoing basis assuming the waiver is granted.

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 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 the

201203035

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 this 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 December 31, 2011, 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 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 yours,

William Hulteng, Manager
Employee Plans Technical

cc: ******

Manager, EP Classification
Baltimore, Maryland

Manager, EP Compliance Unit
Chicago, Illinois