Consumer-products company receives pension funding waiver

Plain-English summary

A privately owned consumer-products company sought relief from its pension plan's required minimum contribution after management problems weakened product appeal, blurred major brand identities, and created a temporary business hardship. The company had responded with new leadership, reduced office costs, more frequent product offerings, restored brand differentiation, less discounting, and suspension of certain nonqualified retiree benefits. The IRS found the section 412(c) hardship standard satisfied and approved the funding waiver. Conditions required timely quarterly and future-year contributions, barred adding the waived-year contributions to the prefunding balance, restricted benefit increases while the deficiency remained unamortized, and required prompt proof of payments.

Ruling snapshot

• Question: Did the company's temporary substantial business hardship justify a waiver of its plan's required minimum contribution?
• Outcome: Approved
• Key authorities: IRC §§ 412(c), 430(j)(3); ERISA §§ 302(c)(7), 303

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201537026 Third Party Communication: None
Release Date: 9/11/2015 Date of Communication: Not Applicable

Index Number: 412.06-00

Person To Contact:

, ID No.

Telephone Number:

Refer Reply To:
CC:TEGE:EB:QP2

PLR-T-103418-15

In re:
Date:
June 10, 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:

1. Starting with the quarterly contributions due on July 15, 2015, the Company
   satisfies the required installments in a timely fashion for the Plan, until the
   waiver amortization base for the Plan Year for the Plan has been fully
   amortized. 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;

PLR-T-103418-15 2

2. No contributions made to the Plan for the Plan Year are added to the
   prefunding balance of the Plan;

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);

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; and

5. The Company provides proof of payment of all contributions described above
   within five (5) business after each payment thereof, to the Service using the
   fax number or address below:

IRS--EP Classification

Mr. Chris Huxtable

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

FAX: 804-916-8222

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
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 consumer products company. The Company
represents that it has recently suffered a temporary substantial business hardship due
to management missteps that diminished the appeal of its product’s designs and
marketing initiatives. The Company represents that it has also experienced a loss of
differentiation between its four major brands as a result of a major acquisition in 2011.

PLR-T-103418-15 3

The Company represents that it 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,
subleasing excess office space, expanding the frequency of new product offerings and
catalogue distributions as well as re-establishing its four distinctive brand identities,
discontinuing its practice of excessive price discounting, and suspension of non-
qualified retiree benefits for former top salaried employees. 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 the Plan 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 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 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 Plan) 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.

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

PLR-T-103418-15 4

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 B. Hulteng

Acting Branch Chief, Qualified Plans Branch 1
(Employee Benefits)

(Tax Exempt & Government Entities)

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