Written determination 1210048: Minimum funding waiver granted for an underfunded plan

Plain-English summary

The IRS granted trustees' request for a waiver of the minimum funding standard for a plan year ending September 30, 2010. The plan had been underfunded after a major employer went bankrupt and withdrew, but a Pension Benefit Guaranty Corporation partition later transferred that employer's liabilities and was expected to leave the plan with a surplus. The IRS concluded that the resulting financial hardship was temporary and granted a waiver under IRC § 412(c) and ERISA section 302(c). The released letter states that the waiver covered contributions otherwise needed to reduce the plan's funding standard account balance to zero.

Ruling snapshot

• Question: Should the plan receive a waiver of the minimum funding standard for the plan year ending September 30, 2010?
• Outcome: Approved.
• Key authorities: IRC § 412(c); ERISA § 302(c)

Full text (IRS public release)

Significant Index No. 0412.06-00

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

201210048

GOVERNMENT ENTITIES
DIVISION

JUN 14 2011

T.EP:RA:A2

Re:

Trustees =
Company A =

Dear

This letter constitutes notice that the Trustees’ request for a waiver of the minimum
funding standard for the Plan for the plan year ending September 30, 2010, has been
granted.

This waiver has been granted in accordance with section 412(c) of the Internal Revenue
Code (“Code”) and section 302(c) of Employee Retirement Income Security Act of 1974
(“ERISA”). The amount for which this waiver has been granted is equal to the
contributions that would otherwise be required to reduce the balance in the funding
standard account of the Plan to zero as of September 30, 2010.

The Plan, established in 1961, covers employees of employers in the baking industry.
For the plan year ending [illegible], seven employers had employees
covered by the Plan. The bankruptcy of Company A, which prior to its partition from the
Plan by the Pension Benefit Guaranty Corporation (“PBGC”) was the largest employer
in the Plan, is the major reason for the underfunding issues in the Plan. As a result of
its bankruptcy filing, Company A ceased making contributions and withdrew from the
Plan effective November 2008. However, the Plan retained the liability for Company A’s
pensioners throughout the plan year ending [illegible].

The Plan was recently the subject of federal litigation concerning the characterization of
employer contributions to the Plan. Specifically, Company A sought action against the
PBGC to reverse the PBGC’s determination dated August 8, 2006, that the Plan was a
multiple-employer plan. This determination superseded the PBGC’s previous
determination dated June 21, 1979, that the Plan constituted an aggregate of separate
[single-employer] pension plans. While the federal court granted summary judgment to
the PBGC, an amended court order dated February 18, 2010, stated that the PBGC’s

August 8, 2006, determination that the Plan was a multiple-employer plan had
prospective effect only. After the conclusion of the federal litigation, the PBGC
partitioned the portion of the Plan related to Company A effective October 20, 2010.

The transfer of Company A’s liabilities to the PBGC resulted in the Plan being more
than 100% funded for the plan year ending [illegible]. In fact, the Plan is
expected to show a surplus of approximately $11 million. Consequently, the financial
hardship that resulted in the Plan’s underfunding for the plan year ending September
30, 2010, is temporary. Consequently, the Trustees’ request for a waiver of the
minimum funding standard for the Plan for the plan year ending [illegible],
has been granted.

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.

201210048

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. 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 [illegible].

Sincerely yours,

for Andrew E. Zuckerman, Director
Employee Plans Rulings & Agreements