Medical practice receives conditional pension funding waiver

Plain-English summary

A medical practice sought a waiver of the remaining minimum required contribution to its pension plan for the 2016 plan year. It had suffered a temporary substantial business hardship after two senior physicians retired, receivables proved difficult to collect, and overhead costs increased. The practice responded by hiring physicians, retaining a collection agency, and reducing operating expenses, and it documented an expected improvement in cash flow. The IRS approved the waiver because the section 412(c) hardship standard was met. The approval was conditional on timely quarterly and annual contributions, restrictions on benefit increases while the waived deficiency remained unamortized, and proof of the required payments.

Ruling snapshot

• Question: Did the medical practice qualify for a waiver of its plan's remaining 2016 minimum funding contribution?
• Outcome: approved
• 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: 201750010                                              Third Party Communication: None
Release Date: 12/15/2017                                       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-109456-17
                                                               Date:
In re: ----------------------------------------------------- September 14, 2017
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Taxpayer = -------------------------------------------------------------------
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, 2016 (“Plan Year”) is
approved subject to the conditions listed below. This waiver is for the remaining unpaid
minimum required contribution for the Plan Year; all waiver amortization payments
representing this waiver must be paid as stated in section 412(c)(1)(C) of the Internal
Revenue Code (the “Code”). This waiver is conditioned on the Taxpayer’s satisfaction of
all of the following conditions; the failure to satisfy any of the following conditions
renders this waiver for the Plan retroactively null and void.

1.       Starting with the quarterly contribution due on October 15, 2017, Taxpayer
         makes contributions equal to the required quarterly contributions to the Plan in a
         timely manner 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;

2.       Under section 412(c)(7) of the Code, Taxpayer 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 section 412(c)(7)(B), in which case Taxpayer must copy PBGC

PLR-109456-17                                        2

       on any correspondence with the IRS regarding notification of or application for
       such an exception;

3.     Taxpayer 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, 2017 through December 31, 2021, by September 15, 2018
       through September 15, 2022, respectively; and

4.     In a timely manner, Taxpayer provides proof of payment of all contributions
       described above to the IRS using the fax number or address below:

       IRS - EP Classification: -------------------------
       --------------------------
       ------------------------------------------------------
       -----------------------------
       --------------------------

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.

Taxpayer, a medical practice, has recently suffered a temporary substantial business
hardship due to the retirement of two senior physicians, its inability to collect on many of
its receivables, and increasing overhead costs. Taxpayer has implemented actions to
facilitate its long term financial improvement. This includes hiring new physicians,
retaining a collection agency, and reducing operating expenses. Taxpayer has
submitted documentation demonstrating that these actions will help its cash flow
improve adequately to satisfy the Plan’s funding obligation in the near future. Based on
the facts as represented by Taxpayer, the legal standard for a “temporary substantial
business hardship” pursuant to section 412(c) of the Code has been met.

PLR-109456-17                                  3

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 Taxpayer, to increase, or any action by Taxpayer 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 the plan 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 Taxpayer (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.

The ruling contained in this letter is based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an appropriate party, as specified in Rev. Proc. 2017-1, § 7.01(15)(b). This office has
not verified any of the material submitted in support of the request for ruling, and such
material is subject to verification on examination. The Associate office will revoke or
modify a letter ruling and apply the revocation retroactively if there has been a
misstatement or omission of controlling facts; the facts at the time of the transaction are
materially different from the controlling facts on which the ruling was based; or, in the
case of a transaction involving a continuing action or series of actions, the controlling
facts change during the course of the transaction. See Rev. Proc. 2017-1, § 11.05.

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.


                                       Sincerely,



                                       Jason Levine
                                       Senior Technician Reviewer
                                       Qualified Plans Branch 4
                                       Office of the Associate Chief Counsel
                                       (Tax Exempt & Government Entities)