Pension minimum-funding waiver approved with conditions

Plain-English summary

A privately owned battery and standby-power manufacturer sought a waiver of its pension plan's required minimum contribution for the 2014 plan year. The company reported a temporary substantial business hardship caused by higher capital spending, weaker revenue, liquidity problems, and business seasonality. It had hired new leadership, raised prices, reduced expenses, and refinanced a credit facility, and projected that cash flow would improve enough to meet future plan obligations. The IRS approved the waiver under section 412(c), but required acceptable collateral, timely quarterly and future-year contributions, benefit-amendment restrictions, a PBGC lien, exclusion of 2014 contributions from the prefunding balance, and prompt proof of payment. The waived amount still had to be amortized as required by the Code.

Ruling snapshot

• Question: Did the company's temporary substantial business hardship justify waiving the pension plan's 2014 minimum-funding contribution?
• Outcome: Approved, subject to specified funding, collateral, lien, reporting, and plan-amendment conditions
• Key authorities: IRC §§ 412(c), 430(j)(3); ERISA §§ 302(c), 303

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201533013 Third Party Communication: None
Release Date: 8/14/2015 Date of Communication: Not Applicable

Index Number: 412.06-00

Person To Contact:

, ID No.

Telephone Number:

Refer Reply To:
CC:TEGE:EB:QP1
PLR-T-103288-15

Date: May 12, 2015

Company
Plan

Dear

This letter constitutes notice that the waiver of the required minimum funding
contribution for the Plan for the plan year ending December 31, 2014 (“Plan Year”) is
approved subject to the conditions listed below. This waiver is for the required minimum
contributions for the Plan Year; all waiver amortization payments representing this
waiver still must be paid as stated in section 412(c)(1)(C) of the Code. This waiver is
conditioned on the Company's satisfaction of all of the following conditions; the failure to
satisfy any of the following conditions renders the waiver for both of the Plans null and
void.

1. Collateral acceptable to Pension Benefit Guaranty Corporation (PBGC) is
   provided to the Plan for the full amount of the funding waiver for the 2014 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 date PBGC notifies the Service in
   writing that acceptable collateral has not been provided to the Plan, but no later
   than 360 days from the date of the Final Ruling Letter;

2. Starting with the quarterly contribution due on July 15, 2015, the Company
   makes contributions equal to 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

PLR-T-103288-15 2

the Code, and can be comprised of several installments made prior to the
respective due date of the quarterly contribution;

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 a waiver under section
   412(c) is in effect with respect to the Plan, except to any extent otherwise
   permitted under Code Section 412(c)(7)(B), in which case the Company must
   copy PBGC on any correspondence with the IRS regarding notification of or
   application for such an exception;

4. The Company makes timely contributions to the Plan in an amount sufficient to
   meet the minimum funding requirements for the Plan for the plan years ending
   December 31, 2015, through 2019, by September 15, 2016 through 2020,
   respectively;

5. The Company executes all appropriate documentation granting PBGC a
   consensual lien against all of its real and personal property as collateral for the
   full amount of the funding waiver for the 2013 plan year by May 30, 2015.

6. No contributions made to the Plan for the 2014 plan year are added to the
   prefunding balance of the Plan.

7. 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

Mr. Chris Huxtable

400 North 8th Street, Room 480
Richmond, VA 23219

Fax: 804-916-8222

Pension Benefit Guaranty Corporation
Corporate Finance & Restructuring
1200 K Street, N.W.

Washington, DC 20005

Fax: 202-842-2643

This waiver is granted in accordance with section 412(c) of the Code and section 303 of
the Employee Retirement Income Security Act of 1974 (“ERISA”).

Section 412(c)(1) of the Code provides generally that if an employer is unable to satisfy
the minimum funding standard for a plan year without temporary substantial business
hardship and application of the standard would be adverse to the interests of plan

PLR-T-103288-15 3

participants in the aggregate, the minimum funding standard requirements may be
waived for the year with respect to all or any portion of the minimum funding standard.

Section 412(c)(2) of the Code provides that the factors taken into account in
determining a temporary substantial business hardship include whether or not the
employer is operating at an economic loss, there is substantial unemployment or
underemployment in the trade or business and in the industry concerned, the sales and
profits of the industry concerned are depressed or declining, and it is reasonable to
expect that the plan will be continued only if the waiver is granted.

The Company is a privately owned manufacturer and distributor of lead acid batteries
and standby power systems. The Company has recently suffered a temporary
substantial business hardship due to increased capital spending, weaker than expected
revenues, and difficulties with liquidity. The Company has also experienced difficulties
with the seasonality of its business.

The Company has implemented a series of actions to stabilize it in the near term and
strengthen it in the long term. This includes hiring new leadership, increasing prices,
reducing expenses, and refinancing a credit facility. The Company believes, and its
financial projections illustrate, that its cash flow will improve adequately to satisfy the
Plan’s funding obligation in the near future.

Based on the facts as represented by the Company, the legal standard for a temporary
substantial business hardship under section 412(c) of the Code has been met.

Section 412(c)(7) of the Code and section 302(c)(7) of ERISA describe the
consequences that result in the event either of the Plans is amended to increase
benefits, change the rate in the accrual of benefits or change the rate of vesting, while
any portion of the waived funding deficiency remains unamortized. Any amendment to a
profit sharing plan or any other retirement plan (covering employees covered by the
Plans) 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 is 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 the Plans) is considered an amendment for purposes
of section 412(c)(7) of the Code and section 302(c)(7) of ERISA.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

PLR-T-103288-15 4

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

Sincerely,

William Hulteng
Acting Branch Chief, Qualified Plans Branch 1
(Tax Exempt & Government Entities)