Hospital receives conditional pension funding waivers for two plan years

Plain-English summary

A hospital serving a semi-rural community requested waivers of minimum pension funding contributions for plan years ending in 2011 and 2012. It attributed the funding shortfall to a temporary business hardship caused by more underinsured patients, lower government reimbursements and grants, and investments in facilities, equipment, and staff. The IRS found that the hospital's cost reductions, revenue strategy, and financial projections supported eventual recovery. It approved the waivers subject to five conditions, including acceptable collateral for the Pension Benefit Guaranty Corporation, timely quarterly and annual contributions, restrictions on benefit increases, and proof of each payment. Failure to satisfy any condition makes the waivers retroactively null and void.

Ruling snapshot

• Question: May the hospital receive waivers of the remaining minimum funding contributions for its 2011 and 2012 plan years?
• Outcome: Approved, subject to stated conditions
• Key authorities: IRC §§ 412(c) and 430(j); ERISA §§ 302(c) and 303

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

201442068

JUL 11 2014

SE:T:EP:RA:T2

Significant Index Number: 412.06-00

In re: Request for Waiver of the Minimum Funding Standard for **** *** **
EIN: *
Company = ***
Plan = ********

Dear *****:

This letter constitutes notice that waivers of the required minimum funding contribution for the Plan for the plan years ending December 31, 2011 and December 31, 2012 have been approved subject to the conditions listed below. The waivers are for the remaining unpaid required minimum contributions for the above listed plan years; all waiver amortization payments representing these waivers still must be paid as stated in section 412(c)(1)(C) of the Code:

1. Within one hundred and twenty (120) days of the receipt of this ruling
   letter, Company will provide collateral acceptable to the Pension Benefit Guaranty Corporation (PBGC) for the full amount of the funding waivers for the 2011 and 2012 plan years.

2. Starting with the quarterly contribution due on October 15, 2013, the
   Company makes the required quarterly contributions to the Plan in a timely fashion while the plan is subject to a waiver of 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;

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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, except to any extent otherwise permitted under Code Section 412(c)(7)(B), in which case Company copies PBGC on any correspondence with the IRS regarding notification of or application for such an exception;

4. The Company makes contributions to the Plan in an amount sufficient to
   meet the minimum funding requirements for the Plan for the plan years ending December 31, 2013, through 2017, by September 15, 2014 through 2018, respectively;

5. The Company provides proof of payment of all contributions described
   above within five (5) business days after each payment thereof, to the Service and PBGC using the fax numbers or addresses below.

IRS - EP Classification

Fax: ****

Pension Benefit Guaranty Corporation

Fax: ***

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 303 of the Employee Retirement Income Security Act of 1974 (“ERISA”).

The Company is a hospital that serves a semi-rural community. It has suffered a temporary substantial business hardship due increased numbers of underinsured or uninsured patients and a decline in reimbursements from government healthcare programs and federal and state government grants. It has also made significant investments in new equipment and personnel in order to upgrade its current facilities or provide additional services to the community for which it serves. These investments temporarily reduced Company’s net income and cash flows.

The Company has demonstrated that it has executed a strategy to increase revenues and reduce expenses to improve its financial health. Its financial projections show that

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it will likely generate increasing profits in future years. In addition, the Company believes, and its financial projections illustrate, that its revenues and cash flows will improve adequately to satisfy the Plan’s funding obligation in the near future.

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 plans (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) 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 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 years ending December 31, 2011 and December 31, 2012, 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 the 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.

If you require further assistance in this matter, please contact ** at () -
*.

Sincerely,

William B. Hulteng, Manager
Employee Plans Technical

cc:

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