Auto-parts manufacturer receives a conditional pension funding waiver

Plain-English summary

A privately held auto-parts manufacturer sought a waiver of its pension plan's remaining unpaid minimum funding contribution for the 2011 plan year. The company had experienced a temporary substantial business hardship from declining sales and investments in new products, but projected improved profits and cash flow. The IRS approved the waiver subject to providing acceptable collateral, making timely quarterly contributions, satisfying minimum funding requirements through 2016, avoiding benefit or liability increases while the deficiency remained unamortized, and documenting the required payments. Failure to satisfy any condition would make the waiver retroactively null and void. The letter superseded an earlier ruling dated December 21, 2012.

Ruling snapshot

• Question: Could the manufacturer's pension plan receive a waiver for its remaining unpaid 2011 minimum funding contribution?
• Outcome: Approved, subject to five conditions
• Key authorities: IRC §§ 412(c), 412(c)(7), and 430(j)(3); ERISA §§ 302(c)(7) and 303

Full text (IRS public release)

201511043

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEC 19 2014

Significant Index Number: 412.06-00 T:EP:RA:T2

In re: Request for Waiver of the Minimum Funding Standard for the ***
** **** (Plan No: *)

EIN: -*

Company = *********

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, 2011 has been approved subject to the conditions listed below. This letter supersedes the ruling letter dated December 21, 2012. This waiver is for the remaining unpaid required minimum contribution for the above listed plan year; all waiver amortization payments representing this waiver still must be paid as stated in section 412(c)(1)(C) of the Code:

1. Collateral acceptable to PBGC is provided to the Plans for the full amount of the
   funding waiver for the 2013 plan year by the later of (a) 120 days from the date of the IRS ruling letter granting the waiver (“Final Ruling Letter”) and (b) the earlier of (i) the date PBGC notifies the Service in writing that this condition has not been met and (ii) 360 days from the date of the Final Ruling Letter;

2. Starting with the contribution due on January 15, 2013, 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;

3. Company makes contributions to the Plan in amounts sufficient to meet the
   minimum funding requirements for the Plan for the plan years ending December 30, 2012 through 2016, by September 15, 2013 through 2017, respectively;

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

5. Company provides proof of payment of all contributions described above in a
   timely manner to the Service 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 waivers are 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 privately-held manufacturer of parts and components for sale primarily to the automotive industry. It has suffered a temporary substantial business hardship due to a decline in sales. It has also made significant investments in new product development, which temporarily reduced Company’s net income and cash flows.

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

201511043

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 year ending December 31, 2011, 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 Hulteng, Manager
Employee Plans Technical

cc: ******

Manager, EP Classification
Baltimore, Maryland

Manager, EP Compliance Unit
Chicago, Illinois

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEC 19 2014

Significant Index Number: 412.06-00 T:EP:RA:T2

In re: Request for Waiver of the Minimum Funding Standard for the ***
** **** (Plan No: *)

EIN: -*

Company = *********

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, 2011 has been approved subject to the conditions listed below. This letter supersedes the ruling letter dated December 21, 2012. This waiver is for the remaining unpaid required minimum contribution for the above listed plan year; all waiver amortization payments representing this waiver still must be paid as stated in section 412(c)(1)(C) of the Code:

1. Collateral acceptable to PBGC is provided to the Plans for the full amount of the
   funding waiver for the 2013 plan year by the later of (a) 120 days from the date of the IRS ruling letter granting the waiver (“Final Ruling Letter”) and (b) the earlier of (i) the date PBGC notifies the Service in writing that this condition has not been met and (ii) 360 days from the date of the Final Ruling Letter;

2. Starting with the contribution due on January 15, 2013, 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;

3. Company makes contributions to the Plan in amounts sufficient to meet the
   minimum funding requirements for the Plan for the plan years ending December 30, 2012 through 2016, by September 15, 2013 through 2017, respectively;

201511043

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

5. Company provides proof of payment of all contributions described above in a
   timely manner to the Service 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 privately-held manufacturer of parts and components for sale primarily to the automotive industry. It has suffered a temporary substantial business hardship due to a decline in sales. It has also made significant investments in new product development, which temporarily reduced Company’s net income and cash flows.

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

201511043

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 year ending December 31, 2011, 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 Hulteng, Manager
Employee Plans Technical

cc: ******

Manager, EP Classification
Baltimore, Maryland

Manager, EP Compliance Unit
Chicago, Illinois