PLR 1215017: IRS grants a conditional waiver of the minimum funding standard

Plain-English summary

The IRS considered a healthcare organization's request for a waiver of the minimum funding standard for its retirement plan for the year ending December 31, 2007. It granted the waiver under IRC § 412(d), subject to collateral, future contributions, reporting, proof-of-payment, and excise-tax conditions. The ruling describes the organization's reliance on Medicare and Medicaid reimbursement and its limited ability to increase revenue. The waiver becomes retroactively null and void if any condition is not met.

Ruling snapshot

• Question: May the plan receive a waiver of the minimum funding standard for the 2007 plan year?
• Outcome: Approved, subject to stated conditions
• Key authorities: IRC § 412(d); IRC § 4971(a); IRC § 6110(k)(3).

Full text (IRS public release)

Significant Index No. 0412.06-00 201215017

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

TAX EXEMPT AND
JAN 17 2012
[illegible]
[illegible]
[illegible]
Re:
Company = ***
Organization = ***
County = ***
State = ***
Dear ******:

This letter constitutes notice that your request for a waiver of the minimum funding
standard for the Plan, for the plan year ending December 31, 2007, has 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 makes contributions to the Plan for each plan year 2011 through
2012 in a minimum amount of $1,080,000 per year, by September 15, 2012 and
September 15, 2013, respectively;

(3) The Company provides to the PBGC a copy of any ruling request it makes
under section 412(c)(7)(A) of the Code;

(4) The Company provides proof of payment of all contributions described above to
the Service and to the PBGC; and

201215017

(5) The 10% excise tax due under section 4971(a) of the Code on any accumulated
funding deficiency that occurred prior to the plan year beginning January 1,
2008 and on any unpaid minimum required contributions in years subsequent to

2007, is satisfied in a timely manner.

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

Internal Revenue Service Pension Benefit Guaranty Corporation
10 Metro Tech Center DISC

625 Fulton Street 1200 K Street, N.W.

Brooklyn, NY 11201 Washington, DC 20005

Fax: (718) 488-2352 Fax: (202) 842-2643

You agreed to these conditions in a letter dated November 29, 2011. If any one of
these conditions is not met, the waiver of the minimum funding standard granted for the
Plan for the plan year ending December 31, 2007, is retroactively null and void.

The conditional waiver granted for the Plan for the plan year ending

December 31, 2007, has been granted in accordance with section 412(d) of the Internal
Revenue Code (“Code”) and section 303 of Employee Retirement Income Security Act
of 1974 (“ERISA”), both as in effect prior to the Pension Protection Act of 2006

(“PPA '06). 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 December 31, 2007.

The Organization has been a health care provider in County, State since 1898. Today
the Company is comprised of seven separate section 501(c)(3) not for profit
corporations serving various health care needs ranging from independent living,
assisted living, and residential long term care in nursing home services. Additionally,
the Company provides services to individuals with developmental disabilities and mental

health disorders.

The financial information provided by the Company clearly shows that it has suffered a
substantial business hardship. Approximately 90% of the Company's income is derived
from Medicaid and Medicare reimbursement. The Company's rates or prices are set by
governmental bodies and the Company has no real ability to generate more revenue.

The Company amended the Plan to freeze all future benefit accruals as of December
31, 2005. In December, 2010, the Company provided updated financial information
concerning revenue, expenses, and cash available for pensions. Due to favorable
financial projections, the Company expects to have 10% more cash available annually
to fund the Plan for plan years 2011 and 2012. Accordingly, the Company's request for

3 90121501 ¢

a waiver of the minimum funding standard for the plan year ending December 31, 2007,
has been granted.

Your attention is called to section 412(f)(1) of the Code and section 304(b) of ERISA,
both in effect prior to PPA '06, which describe the consequences that would result in the
event either 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
deficiencies remain unamortized. Please note that any amendment to a profit sharing
plan or any other retirement plans (covering employees covered by the Plan)
maintained by the Company, to increase the liabilities of those plans would be
considered an amendment for purposes of section 412(f)(1) 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 Plan)
would be considered an amendment for purposes of section 412(f)(1) 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.

As a result of this approval, you will need to file an amended Form 5500 with an
amended Schedule B (Form 5500) for the 2007 plan year and Schedule SB (Form
5500) for the 2008 and later plan years.

We have sent a copy of this letter to the
*** and to the ***. We have sent a

copy of this letter to your authorized representative pursuant to a power of attorney
(Form 2848) on file in this office.

If you have any questions regarding this matter, please contact

Sincerely yours,

Mark F. O'Donnell, Acting Director
Employee Plans Rulings & Agreements