PLR 201322050: IRS grants a conditional pension minimum-funding waiver after supplier disruption

Plain-English summary

The IRS granted a company a conditional waiver of an unpaid required minimum pension contribution for a specified plan year. The company manufactured made-to-order products and experienced temporary business hardship after a natural disaster disrupted a key parts supplier, delaying revenue from a major order. The IRS required timely future quarterly contributions, additional contributions over the stated years, verification of payment, and compliance with restrictions on increasing plan benefits or liabilities while the waived amount remained unamortized. The waiver would be retroactively void if the conditions were not satisfied. The ruling was issued under section 412(c) and section 302 of ERISA.

Ruling snapshot

• Question: Could the company receive a waiver of its required minimum pension funding contribution because of temporary business hardship?
• Outcome: Approved, subject to conditions.
• Key authorities: IRC §§ 412(c), 412(c)(1)(C), 412(c)(7), 430(j)(3), and 6110(k)(3); ERISA §§ 302 and 302(c)(7).

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224 201 322 0 5 0

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB 2.6 2013

U.I.L. 412.06-00 T° EP. RATS

Plan =

Company

Dear

This letter constitutes notice that your request for a waiver of the required minimum funding contribution for the Plan for the plan year ending August __, 20 _ , has been granted subject to the conditions listed below. This waiver is for the unpaid required minimum contribution for the above listed plan year; all waiver amortization payments representing the waiver must be paid as stated under section 412(c)(1)(C) of the Internal Revenue Code (the Code’).

1. Starting with the quarterly contribution due March ,20 the Company
   makes the required quarterly contributions to the Plan in a timely fashion while the Plan is subject to the minimum funding standard. For this purpose, the total amount of each quarterly contribution will be determined in accordance with section 430(j)(3)(D) and section 430(j)(3)(E) of the Code and can be comprised of several installments made prior to the respective due date of the quarterly contribution

2. The Company makes contributions to the Plan in amounts sufficient to
   meet the minimum funding requirements for the Plan for the plan years ending August. ,20° through20° ,byMay:' ,20° through 20 respectively.

3. Under section 412(c)(7) of the Code, the Company is restricted from
   amending the Plan to increase benefits and/or Plan liabilities while any portion of the waived funding deficiency remains unamortized, with only certain exceptions as defined in section 412(c)(7)(B).

2 201322050

4. The Company provides verification of payment of all contributions
   described above in a timely manner to the Internal Revenue Service using the following address or fax number:

You agreed to these conditions in a letter dated January’ ,20 _ . If any of these conditions is not satisfied, the waiver will be retroactively null and void.

This conditional waiver has been granted in accordance with section 412(c) of the Code and section 302 of the Employee Retirement Income Security Act of 1974 (“ERISA”).

The Company is a manufacturer of specialized products, all of which are made to order based on customer specifications. The Company suffered a temporary substantial business hardship due to a natural disaster affecting a key parts supplier. The Company had a very significant contract for product to be shipped in December 2011. Because of the disaster and its impact on the supplier, the Company received only a portion of the parts required to complete and ship the order. The resulting loss in revenue contributed to an operating loss for the Company in 2011. The affected order was not entirely shipped until October 2012. Contributing to the Company’s cash flow problems was the fact that the Company did not receive income from this order until months after paying other suppliers for their parts.

The Company’s Plan was overfunded in prior years and the Company forecasts sufficient income and cash flow to make the minimum required contributions over the waiver amortization period.

Your attention is called to section 412(c)(7) 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. Please note that any amendment to a profit sharing plan or any other retirement plan (covering employees covered by this Plan) maintained by the Company, to increase, or any action by the Company or its authorized agents or designees (such as a Board of Directors or Board of Trustees) that has the effect of increasing the liabilities of those plans, would be considered an amendment for purposes of section 412(c)(7) 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 Company (covering employees covered

801322050

by this Plan) would be considered an amendment for purposes of section 412(c)(7) 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 August , 20 , the date of this letter should be entered on Schedule SB (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 Schedule SB.

We have sent a copy of this letter to the Manager, EP Classification in Baltimore, Maryland and to the Manager, EP Compliance Unit in Chicago, Illinois, and to your authorized representative pursuant to a power of attorney on file in this office.

If you wish to inquire about this ruling please contact ** at ***. Please

address all correspondence to SE:T:EP:RA:T3.

Sincerely,

William B. Hulteng, Manager
Employee Plans Technical