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:
------------------------ -----------------, ID No. -----------------
------------------------------------------------------------ Telephone Number:
--------- --------------------
-------------------------------------------- Refer Reply To:
----------------------------------------------- CC:EEE:EB:QP1
----------------------- PLR-108419-20
Date:
In Re: ---------------------------------------------------- October 01, 2020

Taxpayer = ---------------------------------------------------------------------
Plan = ----------------------------------------------------------------------------------------------
----------------------------

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 2

  § 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:

  ------------------------------
  -------------------------
  ------------------------------------------
  ----------------------------
  -------------------------

  ---------------------------------------------------
  ----------------------------------------------
  ---------------------------
  -------------------------------
  -------------------------
  ------------------------------------------------

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.
PLR-108419-20 3

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.
PLR-108419-20 4

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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