Pension funding extension ends after a condition failure

Plain-English summary

A pension plan had received conditional approval in 2005 to extend the period for amortizing unfunded liabilities by ten years. The IRS modified that ruling so a failure to meet a condition would end the extension for the year of failure and later years, rather than make the approval retroactively void. Because the plan first failed a condition in 2009, the extended amortization periods no longer applied beginning that year. The plan had been in critical status since 2008, and the IRS stated that no IRC § 4971 tax would apply for years in which it remained in critical status and satisfied the requirements of § 4971(g)(2)-(4). The IRS also changed the address for future actuarial valuation reports.

Ruling snapshot

• Question: How should the plan's prior conditional ten-year funding extension operate after the plan failed one of its conditions?
• Outcome: Mixed, the extension ended prospectively beginning in 2009, while section 4971 tax relief remained available if statutory conditions were met
• Key authorities: IRC §§ 412(b)(2)(B) and 4971(g); ERISA § 302(b)(2)(B)

Full text (IRS public release)

Significant Index No. 0412.00 - 00

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

APR 28 2016

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

In re:
("Plan") (Plan No. )
EIN:
Fund =
Industry =

Dear:

This letter constitutes notice that the ruling letter (the “Ruling Letter"), dated July 13,

2005, granting conditional approval for a 10-year extension for amortizing the

unfunded liabilities described in section 412(b)(2)(B) of the Internal Revenue Code and
section 302(b)(2)(B) of the Employee Retirement Income Security Act of 1974, has been

modified.

Specifically, the Ruling Letter has been modified, in substantive part, to replace the second

sentence of the paragraph just below the conditions on page two¹ with the following

sentence:

If any one of these conditions is not satisfied, the approval to extend the amortization periods
for amortizing the unfunded liabilities shall not apply to any plan year ending on or after the date
the condition is not satisfied.

It is our understanding that the Plan first failed to meet one of the conditions in the
Ruling Letter in the 2009 plan year. Therefore, the approval to extend the amortization
periods for amortizing the unfunded liabilities does not apply to the 2009 plan year and

all subsequent plan years.

The Plan has been in Critical status since the 2008 plan year. It is our understanding
that the Plan has not failed any of the requirements in paragraphs (2), (3), or (4) of
section 4971(g) of the Code. Accordingly, no tax under section 4971 shall be imposed
under section 4971 for the 2009 plan year and all subsequent plan years in which the
Plan is in Critical status and has not failed any of the requirements in paragraphs (2),

(3), or (4) of section 4971(g) of the Code.

¹ Prior to the modification the sentence read as follows: “If any one of these conditions is not satisfied, the
approval to extend the amortization periods for amortizing the unfunded liabilities would be retroactively null

and void.”

This letter also modifies the third condition of the Ruling Letter to provide that copies of the
future actuarial valuation reports are to be provided to the following address.

Internal Revenue Service

Attn: Lawrence E. Isaacs, SE:T:EP:RA:T:A2
11171 Constitution Avenue, N.W., NCA-629
Washington, DC 20224

This modification carries out the purposes of ERISA, and protects participants. The failure
to provide this modification to the extension would be a substantial risk to the continuation
of the plan and would be adverse to participants’ interests.

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 (ID# ) at

( ) -

Sincerely yours,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

CC: