Child-care nonprofit receives a conditional minimum-funding waiver

Plain-English summary

A nonprofit child-care provider sought a waiver of its pension plan's minimum funding standard for the 2011 plan year. Major state funding cuts and overspending by inexperienced successor managers left the organization unable to make plan contributions, although it later rehired its former director, reduced costs, followed a stricter budget, and pursued a loan. The IRS found a substantial business hardship and conditionally granted the waiver. The organization must pay the aggregate unpaid minimum contribution by the stated deadline, provide acceptable collateral, give the IRS and PBGC proof of payment, and fully fund the plan by a redacted June 30 date.

Ruling snapshot

• Question: Could the nonprofit child-care provider's pension plan receive a minimum-funding waiver for 2011?
• Outcome: Approved, subject to conditions
• Key authorities: IRC §§ 412(c), 412(c)(7), and 4971(c)(4); ERISA §§ 302(c)(7) and 303

Full text (IRS public release)

Significant Index No. 0412.06-00
DEPARTMENT OF THE TREASURY 201513006

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION

DEC 31 2014

T:EP:RA:A2

Re:

Dear

This letter constitutes notice that your request for waiver of the minimum funding
standard for the Plan for the plan year ending December 31, 2011, has been granted
subject to the following conditions:

1. The Company makes one or more contributions to the Plan by December 31, 2015,
   in an amount that equals or exceeds the aggregate unpaid minimum required
   contribution (within the meaning of section 4971(c)(4) of the Internal Revenue Code
   (Code)) as of December 31, 2014;

2. Collateral acceptable to the Pension Benefit Guaranty Corporation (“PBGC”) is
   provided to the Plan for the full amount of the 2011 waiver by the later of (a) 120
   days from the date of the ruling letter or (b) the earlier of (i) the date the PBGC
   notifies the Service in writing that this condition has not been met or (ii) 360 days
   from the date of the ruling letter; and

3. The Company provides proof of payment of the contributions described above in a
   timely manner to the Internal Revenue Service and to the PBGC using the fax

numbers or addresses below:

Mr. Chris Huxtable

IRS-EP Classification

400 North Eighth Street, Room 480
Richmond, VA 23219

Fax: 804-916-8222

201513006

PBGC

Corporate Finance and Restructuring Department
1200 K Street NW

Washington, DC 20005

Fax: 202-842-2643

If these conditions are not met, the waiver of the minimum funding standard granted for
the Plan for the plan year ending December 31, , is retroactively null and void.

The conditional waiver granted for the Plan for the plan year ending December 31,

has been approved in accordance with section 412(c) of the Code and section 303 of
ERISA. The amount for which this waiver has been granted is equal to the amount that
is needed to satisfy the minimum funding standard for the plan year ending

December 31,

The Company is .

The Company's primary business is providing child care services for children from low
income families from birth to five years of age. The Company is a not-for-profit
organization that receives its funding from the State of (State) and the
Federal government.

The current financial hardship was mostly brought on by major cuts in funding from the
State. The State restricted the eligibility criteria for parents who can be enrolled in the
After-Care Program. The financial impact of this change is that the revenue from the

State decreased approximately 72% from to . At the same time, the
Company's director of thirty years retired. Her successors were not familiar with
accounting and budgeting and caused the Company to overspend from to

and left the Company with no resources to make pension plan contributions. The
Company has initiated efforts to seek funds from other sources but was not successful.
These facts, along with the financial information provided by the Company, show that the
Company has experienced a substantial business hardship.

In response to its business hardship, the Company has implemented many cost recovery
initiatives, such as hiring back the former retired director, increasing employees’ cost
share of health plan coverage, and strictly adhering to the budget. The Company is also
in the process of obtaining a loan to repay the aggregate unfunded minimum required
contribution.

Financial data indicates that long term funding of the Plan is not certain and the
Company will struggle to satisfy both the loan payments and the required minimum
contributions to the Plan. Accordingly, we are granting this waiver conditioned on the
Company fully funding the Plan by June 30,

201513006

Your attention is called to section 412(c)(7) of the Code and section 302(c)(7) of the
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 the Board of Directors or the 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 the 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 the 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, , 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, 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 require further assistance in this matter, please contact

Sincerely,

William Hulteng, Manager
Employee Plans Technical

cc:

Manager, EP Classification
Baltimore, Maryland

Manager, EP Compliance Unit
Chicago, Illinois