PLR 1230034: IRS denies a pension funding waiver because the hardship was not temporary

Plain-English summary

A mutual insurance company asked the IRS to waive the minimum funding standard for its pension plan. The company reported declining sales and revenue, but its interim financial statements showed that losses continued after it took steps to address the hardship. The IRS concluded that the financial hardship was not temporary and that the plan could not continue even if the waiver were granted. It denied the request and noted that excise taxes under IRC § 4971(a) were due on the accumulated funding deficiency.

Ruling snapshot

• Question: May the plan receive a waiver of the minimum funding standard for a redacted plan year?
• Outcome: Denied
• Key authorities: IRC §§ 412, 4971(a), and 6110(k)(3)

Full text (IRS public release)

Significant Index No. 0412.06-00

201230034

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUN 2 6 2009

[illegible handwritten notation]

Re:

Company =

Dear

This letter constitutes notice that your request for a waiver of the minimum funding
standard for the above-named plan for the plan year ending December 31, , has
been denied.

The Company is a mutual insurance company founded in 1925 in Los Angeles,
California. It primarily provides insurance products to the Hispanic community and
currently has offices in California, Illinois, Texas and Michigan. The financial hardship
occurred because the Company's customer base was targeted by larger insurance
companies, which has resulted in declining sales. Additionally, the downturn in the
economy has resulted in declining revenue for the Company.

To offset the decline in sales and revenue, the Company increased its sales force and
was trying to cut costs throughout the Company. It sold its headquarters building and
attempted to increase revenue by acquiring an office building in TX, which it had hoped
would generate additional revenue. However, a review of the interim financial
statements from the Company for the quarter ending June 30, 2008, shows that the
Company's losses were continuing at the same level as before these changes were
implemented, and the Company's plan to resolve its financial hardship does not appear
to be adequate. Thus, we concluded that the Company's financial hardship is not
temporary and the Plan would not be able to continue even if the funding waiver was
granted.

You were notified in a letter dated November 12, 2008, that your request had been
tentatively denied. A conference of right was held on November 21, 2008, at which only
your authorized representative attended on behalf of the Company. At that time, we
indicated to your authorized representative that in order to reconsider our tentative
denial, the Company would need to provide a detailed recovery plan with projections of
revenue by category, expenses and cash flow. To date we have not received any of the

201230034

2

requested information from the Company. Accordingly, your request for a waiver of the
minimum funding standard for the Plan for the plan year ending December 31, ,
has been denied.

You should note that excise taxes under section 4971(a) of the Internal Revenue Code
("Code") are currently due on the accumulated funding deficiency in the Plan for the
Plan year ending December 31, . 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.

We have sent a copy of this letter to the
to the and to your
authorized representative pursuant to a power of attorney on file in this office.

If you require further assistance in this matter, please contact

Sincerely yours,

David M. Zeigler, Manager
Employee Plans Actuarial Group 2