IRS determination 201218039: Minimum-funding waiver denied for a multiemployer plan

Plain-English summary

The IRS denied a request to waive the minimum funding standard for a multiemployer pension plan. The plan’s trustees argued that at least two contributing employers experienced substantial business hardship, but the IRS found that the submitted information did not establish that the required percentage of employers could not satisfy the funding standard. The IRS concluded that Hotel A could satisfy its share and that Hotel B had in fact paid its share for the relevant plan year. The letter also states that excise taxes under section 4971(a) were due on the plan’s accumulated funding deficiency and directs the plan to file Form 5330.

Ruling snapshot

• Question: Did the plan meet the requirements for a waiver of the minimum funding standard?
• Outcome: denied
• Key authorities: IRC § 412(c)(1)(A); IRC § 4971(a); 26 U.S.C. § 6110(k)(3)

Full text (IRS public release)

Significant Index No. 0412.06-00
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
201218039

TAX EXEMPT AND

GOVERNMENT ENTITIES
Re:
Region =
Hotel A =
Hotel B =
Dear

This letter constitutes notice that your request for a waiver of the minimum funding standard for the Plan for the plan year ending May 31, 20__, has been denied. In a letter dated December 2, 2008, you were informed that your application for a waiver of the minimum funding standard had been tentatively denied and were offered a conference of right. Your conference of right was held on March 4, 2009. Our primary reason for the tentative denial was that the standards for a substantial business hardship had not been met. In particular, it was our position that the contributing employers could satisfy the minimum funding standard for the plan year in question without experiencing substantial business hardship.

FILE COPY

201218039

2

Section 412(c)(1)(A) of the Code (as in effect prior to the Pension Protection Act

of 2006) provides that, in the case of a multiemployer plan, if at least 10% of the contributing employers are unable to satisfy the minimum funding standard without experiencing substantial business hardship and application of the standard would be adverse to the interests of plan participants' in the aggregate, then the minimum funding standard for the plan year in question may be waived. According to the information received for this case, in order to show that at least 10% of the contributing employers have experienced substantial business hardship for the plan year in question, the Taxpayer must show that at least two of the contributing employers were unable to satisfy the minimum funding standard without experiencing substantial business hardship. For this purpose, the Trustees submitted financial information for Hotel A and Hotel B in order to show that a substantial business hardship had occurred.

The financial information submitted for Hotel A shows approximately $ in total net income for the period January 1, 20__, through March 31, 20__. Hotel A made contributions totaling $ to the Plan during this period. Hotel A’s portion of the funding shortfall is only $ . Based on this information, it does not appear that Hotel A would experience a substantial business hardship in order to satisfy its portion of the minimum funding standard for the plan year ending May 31, 20

While the financial information submitted for Hotel B shows losses for the fiscal years ending December 31, 20__, 20__, 20__, and 20__, your authorized representative indicated at the conference of right that Hotel B was able to pay its share of the minimum funding standard for the plan year ending May 31, 2005. Hence, Hotel B did not experience a substantial business hardship in order to satisfy its portion of the minimum funding standard for the plan year ending May 31, 2005.

It’s clear that the Plan has experienced financial difficulties. However, the Trustees have failed to provide sufficient information that at least 10% of the Plan’s contributing employers were unable to satisfy the minimum funding standard for the Plan for the plan year ending May 31, 20__, without experiencing substantial business hardship as required by section 412(c)(1)(A) of the Code. Accordingly, your request for a waiver of the minimum funding standard for the Plan for the plan year ending May 31, 20__, has been denied.

You should note that excise taxes under section 4971(a) of the Internal Revenue Code are currently due on the accumulated funding deficiency in the Plan for the plan year ending May 31, 20__. You should file a Form 5330 as soon as possible to report and pay the taxes.

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.

201218039

We have sent a copy of this letter to the Manager, EP Classification in

to the Manager, EP Compliance Unit in "and to your
authorized representative pursuant to a power of attorney (Form 2848) on file with this office. If you require further assistance concerning this matter, please contact

Sincerely yours,

[signature]

David M. Ziegler, Manager
Employee Plans Actuarial Group 2