IRS approves a conditional minimum funding waiver for a pension plan

Plain-English summary

An employer asked the IRS to waive the remaining minimum required contribution to its pension plan for a redacted plan year. The employer attributed its temporary substantial business hardship to project-related problems and the COVID-19 pandemic, which affected liquidity and profitability. Based on the employer's representations and financial projections, the IRS found that the hardship standard in IRC § 412(c) was met. The waiver requires acceptable collateral, timely quarterly and annual contributions, proof of payment, and restrictions on benefit-increasing plan amendments. Failure to satisfy any condition makes the waiver retroactively null and void.

Ruling snapshot

• Question: Did the employer qualify for a waiver of the pension plan's minimum funding requirement because of temporary substantial business hardship?
• Outcome: Approved, subject to stated funding, collateral, reporting, and plan-amendment conditions.
• Key authorities: IRC §§ 412(c) and 430(j); ERISA § 302; CARES Act § 3608(a).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202053002
Third Party Communication: None
Release Date: 12/31/2020
Date of Communication: Not Applicable
Index Number: 412.06-00
Person To Contact:
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-----------------, ID No. -----------------
------------------------------------------------------------ Telephone Number:
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-------------------------------------------- Refer Reply To:
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PLR-108419-20
Date:
In Re: ---------------------------------------------------- October 01, 2020
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Taxpayer = --------------------------------------------------------------------- Plan = ----------------------------------------------------------------------------------------------
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Dear -------------------:

This letter constitutes notice that the waiver of the minimum funding standard for Plan for the plan year ending December 31, ------- (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 attributable to this waiver and all outstanding waivers must be paid as stated in § 412(c)(1)(C) of the Internal Revenue Code (the Code). Accordingly, Taxpayer must timely satisfy payment of the amortized portion of the waiver for the--------plan year, as this is a condition of the waiver for the ------- plan year that was previously granted.

This waiver is conditioned on Taxpayer’s satisfaction of all of the following conditions, and the failure to satisfy any of these conditions renders this waiver retroactively null and void as of the date the waiver is granted.

1. Collateral acceptable to the ------------------------------------------------------------------ is provided to Plan for the full amount of the minimum funding waiver for the ------- plan year within 120 days from the date of the IRS ruling letter granting the waiver;

2. Starting with the quarterly contributions originally due on April 15, 2020, July 15, 2020, and October 15, 2020 that are now due on January 1, 2021 pursuant to
PLR-108419-20
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§ 3608(a) of the CARES Act, Taxpayer makes timely contributions equal to the required quarterly contributions to Plan while a waiver under § 412(c) of the Code is in effect with respect to Plan. For this purpose, the total amount of each quarterly contribution will be determined in accordance with § 430(j)(3)(D) and § 430(j)(3)(E) of the Code;

3. Under § 412(c)(7), Taxpayer is restricted from amending Plan to increase
   benefits and/or Plan liabilities while a waiver under § 412(c) is in effect with
   respect to the Plan, except to any extent otherwise permitted under
   § 412(c)(7)(B), in which case Taxpayer must copy PBGC on any correspondence
   with the Internal Revenue Service (IRS) regarding notification of or application for
   such an exception;

4. Taxpayer makes timely contributions to Plan in an amount sufficient to meet the
   minimum funding requirements for Plan for the plan years ending December 31, -
   -------, through December 31, -------, by September 15, ------- through September
   15, -------, respectively;

5. Taxpayer provides proof of payment of all contributions described above to IRS
   and ---------within (5) business days of each payment thereof, using the following
   fax numbers or addresses:

   ---

   ---

   ---

   ---

   ---

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This waiver is granted in accordance with § 412(c) of the Code and § 302 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.
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Section 412(c)(2) provides that the factors taken into account in determining a temporary substantial business hardship include whether the employer is operating at an economic loss, whether there is substantial unemployment or underemployment in the trade or business and in the industry concerned, whether the sales and profits of the industry concerned are depressed or declining, and whether it is reasonable to expect that the plan will be continued only if the waiver is granted.

Taxpayer has been suffering from a temporary substantial business hardship due to issues arising from certain projects it was involved in, as well as the effects from the COVID-19 pandemic, both of which significantly affected its liquidity and profitability. Taxpayer has implemented a series of actions to facilitate its long term improvement, and its financial projections illustrate that its cash flows will 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 § 412(c) has been met.

Section 412(c)(7) of the Code and § 302(c)(7) of ERISA describe the consequences that result in the event the Plan is amended to increase benefits, change 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 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 § 412(c) of the Code and
§ 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 § 412(c)(7) of the Code and § 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. 2020-1, § 7.01(16)(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. 2020-1, § 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.
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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 representatives.

Sincerely,

Janet Laufer
Senior Technician Reviewer
Qualified Plans Branch 3
Office of the Associate Chief Counsel
(Employee Benefits, Exempt Organizations, and Employment Taxes)

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