IRS waives a pension plan's minimum funding requirement for one year on COVID-19 hardship, with PBGC collateral and contribution conditions

Plain-English summary

An employer that sponsors a defined-benefit pension plan asked the IRS to waive the plan's minimum funding requirement for one plan year. Tax law lets the IRS grant this waiver when the employer faces a temporary substantial business hardship and enforcing full funding would hurt participants overall (IRC § 412(c)). The employer represented that the COVID-19 pandemic had significantly hurt its liquidity and profitability, but that its projections showed cash flow recovering enough to meet the plan's obligations soon. The IRS approved the waiver for the remaining unpaid required contribution, but attached conditions: the employer must post collateral acceptable to the Pension Benefit Guaranty Corporation (PBGC) within 120 days, make timely quarterly and future minimum contributions, refrain from amending the plan to increase benefits while the waived amount is unamortized, and give the IRS and PBGC proof of each payment. The waived amount must still be paid off over time through waiver amortization payments, and failing any condition voids the waiver retroactively.

Ruling snapshot

• Question: May the IRS waive the minimum funding standard for one plan year based on the employer's temporary substantial business hardship?
• Outcome: Approved (waiver granted subject to PBGC collateral and contribution conditions)
• Key authorities: IRC § 412(c) (including § 412(c)(1)(C), (c)(2), (c)(7)); ERISA § 302; IRC § 430(j)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202211001 Third Party Communication: None
Release Date: 3/18/2022 Date of Communication: Not Applicable
Index Number: 412.06-00
Person To Contact:
----------------- ------------------------, ID No. -----------------
------------------------------ Telephone Number:
--------------------------------- --------------------
------------------------------------------- Refer Reply To:
------------------------------ CC:EEE:EB:QP3
PLR-106442-21
Date:
December 17, 2021

Legend

Taxpayer: -----------------------------------------------------------
Plan: --------------------------------------------------------------------------------------------------

Plan Year: -------------------------------------------

In Re: Funding Waiver Request

Dear -------------:

This letter constitutes notice that the waiver of the minimum funding standard for the
Plan for the Plan Year is approved subject to the conditions listed below. This waiver is
for the remaining unpaid minimum required contribution for the Plan Year after
application of all prefunding balances; all waiver amortization payments attributable to
this waiver and all outstanding waivers must be paid as stated in section 412(c)(1)(C) of
the Internal Revenue Code (the Code).

This waiver is conditioned on Taxpayer's satisfaction of all 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 Pension Benefit Guaranty Corp (PBGC) is provided
   to the Plan for the full amount of the minimum funding waiver by the date agreed
   upon by Taxpayer, but no later than 120 days from the date of the IRS ruling
   letter granting the waiver;

2. Starting with the quarterly contribution due -----------------------, Taxpayer will make
   timely required quarterly contributions to the Plan while a waiver under section
   412(c) is in effect with respect to the Plan. For this purpose, the total amount of
   each quarterly contribution will be determined in accordance with section
   430(j)(3)(D) and, whenever applicable, sections 430(j)(3)(E) and 430(j)(4);

3. Taxpayer will make timely contributions to the Plan in amounts sufficient to meet
   the minimum funding requirements for the Plan for the plan years ending ----------
   --------------------------, through --------------------------, by ---------------------------,
   through ---------------------------, respectively;

4. Under section 412(c)(7), Taxpayer is restricted from amending the Plan to
   increase benefits and/or Plan liabilities while any portion of the waived deficiency
   remains unamortized, with only certain exceptions as defined in section
   412(c)(7)(B). Taxpayer will copy PBGC on any correspondence with the IRS
   regarding notification of or application for such an exception;

5. No contributions made to the Plan for the ------- plan year are added to the
   prefunding balance of the Plan;

6. Until full amortization of the waived amount, Taxpayer provides proof of payment
   of all contributions described above to the IRS and PBGC within five business
   days of each payment thereof, using the following fax numbers or addresses:

          IRS – EP Classification
          Mr. Chris Huxtable
          400 North 8th Street, Room 480
          Richmond, VA 23219
          Fax: 804-916-8222

          Pension Benefit Guaranty Corporation
          Corporate Finance & Restructuring
          1200 K Street, N.W.
          Washington, DC 20005
          Fax: 202-299-5308
          Email: [email protected]

This waiver is granted in accordance with section 412(c) and section 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 Secretary may waive the minimum funding standard
requirements for the year with respect to all or any portion of the minimum funding
standard.

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 the
effects of the COVID-19 pandemic, which has 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 section 412(c) has been met.

Section 412(c)(7) and section 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 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 penalties of perjury statement executed
by an appropriate party, as specified in Rev. Proc. 2021-1, § 7.01(16). 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. 2021-1, § 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,

                                   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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