Amortization extension modified after pension plan condition failure

Plain-English summary

A multiemployer pension plan had received conditional approval to extend the period for amortizing unfunded liabilities under IRC § 412 and ERISA § 302. The IRS modified that ruling because the plan expected to fail one of its conditions. The extension would no longer apply beginning with the plan year in which the failure occurred or in later years, rather than becoming retroactively void. The IRS also stated that no tax under IRC § 4971 would be imposed for those years while the plan remained in critical status and continued to satisfy the requirements in section 4971(g)(2), (3), and (4).

Ruling snapshot

• Question: How does a pension plan's expected failure of a condition affect its approved extension for amortizing unfunded liabilities?
• Outcome: Approved. The prior ruling was modified so the extension ends prospectively beginning with the plan year of failure.
• Key authorities: IRC §§ 412(b)(2)(B), 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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB 16 2017

Re: (the “Plan”)

EIN: - ; Plan No.

Year of Failure = ,

Dear :

This letter constitutes notice that the ruling letter dated April 10, 2015 (“Ruling Letter”),
which modified the ruling letter dated March 26, 2010, 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. Your authorized
representatives agreed to this modification on February 13, 2017.

Specifically, the Ruling Letter has been modified, in substantive part, to replace the first
sentence of the paragraph just below the conditions on page four¹ with the following
sentence:

If any one of the conditions provided in the ruling letter dated March 26, 2010, as
modified by the ruling letter dated April 10, 2015, 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 will fail to meet one of the conditions in the Ruling
Letter during the plan year beginning Year of Failure. Therefore, the approval to extend
the amortization periods for amortizing the unfunded liabilities does not apply to the plan
year beginning Year of Failure, and all subsequent plan years.

¹ Prior to the modification the sentence read as follows: “If any one of the conditions provided in the
Letter Ruling, as modified by this letter, is not satisfied, the approval to extend the amortization periods
for amortizing the unfunded liabilities would be retroactively null and void to .”

2

201719029

The Plan has been in Critical status since the 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 Year of Failure 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.

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 representatives pursuant to a power of attorney on file in this office.

If you have any questions regarding this matter, please contact
(ID# ) at ( ) - .

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

cc: