PLR 201319035: IRS approves a conditional minimum funding waiver

Plain-English summary

The IRS approved a waiver of a plan's required minimum funding contribution for a specified plan year. The approval was conditional on the sponsor making later contributions, timely quarterly contributions, providing acceptable collateral, and giving proof of payment to the IRS and the Pension Benefit Guaranty Corporation. The sponsor had experienced financial hardship after a major customer reduced its business, but the IRS found that the sponsor's financial condition was improving and that projected revenues and cash flows could meet future funding obligations. The waiver becomes retroactively null and void if any condition is not satisfied.

Ruling snapshot

• Question: Could the plan receive a conditional waiver of its minimum funding contribution?
• Outcome: Approved, subject to stated conditions.
• Key authorities: IRC §§ 412(c) and 430(j)(3); ERISA §§ 302(c) and 302(c)(7).

Full text (IRS public release)

201319035

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB 14 2013

Significant Index Number 412.06-00

T.EP.RA.T

Re:

Sponsor:

Plan:

Dear

This letter constitutes notice that a waiver of the required minimum funding contribution for the Plan for the plan year ending December 31, 20[illegible] has been approved subject to the conditions listed below. A waiver was previously approved for the plan year ending December 31, 20[illegible].

1. The Company makes contributions to the Plan in amounts sufficient to meet the
   minimum funding requirements for the plan years ending December 31, 20[illegible] through December 31, 20[illegible], by September 15 of the following years respectively;

2. Starting with the contribution due on April 15, 20**, the Company makes all
   quarterly contributions to the Plan required under section 430(j)(3) of the Code in a timely fashion while the Plan is subject to the waiver of the minimum funding standard;

See IRS letter dated September 12, 2011, which was agreed to by the Sponsor in a letter dated September 15, 2011.

3. Under section 412(c)(7) of the Code, the Company is restricted from amending the
   Plan to increase benefits or plan liabilities while any portion of the waived funding deficiency remains unamortized;

4. The Company provides collateral acceptable to PBGC for the full amount of the
   Plan Year 20[illegible] waiver within 120 days of the receipt of the IRS ruling letter; and

5. The Company provides proof of payment of all contributions described above in a
   timely manner to the Internal Revenue Service and to PBGC at the addresses noted below:

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(c) of the Internal Revenue Code and section 302(c) of the Employee Retirement Income Security Act of 1974 ("ERISA").

The Sponsor is a privately owned corporation. It operates three lines of business administered by distinct operating divisions. The Sponsor incurred a financial hardship when its largest customer in one of its lines of business substantially reduced the amount of business it transacted with the Sponsor, leading to a reduction of revenue for this line of business decreased by ** percent. In response, the Sponsor outsourced certain operations for this line of business, reorganized other parts of the business, and took steps to diversify its operations. In addition, the major customer that previously reduced its activity with the Sponsor is now increasing the amount of business with the Sponsor. The Sponsor has demonstrated that its financial health is improving and provided projections that illustrate that its revenues and cash flows will improve adequately to satisfy the Plan's funding obligations in the future.

Your attention is called to section 412(c) of the Code and section 302(c)(7) 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.

2

Please note that any amendment to a profit sharing plan or any other retirement plans (covering employees covered by this plan) maintained by the Sponsor, to increase the liabilities of those plans would be considered an amendment for purposes of section 412(c) of the Code and section 302(c)(7) of ERISA. Similarly, the establishment of a new profit sharing plan or any other retirement plan by the Sponsor (covering employees covered by this plan) would be considered an amendment for purposes of section 412(c) of the Code and section 302(c)(7) 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, 20[illegible], 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 , and to the Manager, EP Compliance Unit in .

We have sent a copy of this letter 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,

William B. Hulteng, Manager
Employee Plans Technical

cc: Manager, EP Classification

Manager, EP Compliance Unit