Pension plan receives conditional minimum funding waiver for 2016

Plain-English summary

A privately owned manufacturer sought relief from its pension plan's unpaid minimum required contribution for the 2016 plan year. The company attributed its hardship to difficulty qualifying new products, increased price competition, and its focus on higher-margin product segments, while projecting improvement from operational changes. The IRS found a temporary substantial business hardship under IRC § 412(c) and approved the waiver. The relief required acceptable collateral, timely quarterly and later-year contributions, restrictions on benefit increases, specified treatment of 2016 and 2017 contributions, and proof of payment to the IRS and Pension Benefit Guaranty Corporation. Failure to satisfy any condition would make the waiver retroactively void.

Ruling snapshot

• Question: Does the employer qualify for a waiver of its pension plan's remaining 2016 minimum funding contribution?
• Outcome: Approved with conditions. The waiver depends on collateral, contribution, plan-amendment, and reporting requirements.
• Key authorities: IRC §§ 412(c), 430(j)(3); ERISA §§ 302(c)(7), 303

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201722009 Third Party Communication: None
Release Date: 6/2/2017 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-127008-16
In re: Request for Waiver of the Minimum Date:
Funding Standard for ------------------------------- February 27, 2017

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 and all outstanding waivers must be paid as stated in section
412(c)(1)(C) of the Internal Revenue 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. Collateral acceptable to the Pension Benefit Guaranty Corporation (“PBGC”) is
   provided to the Plan for the full amount of all outstanding minimum funding
   waivers within 60 days of the date of this ruling letter, unless such 60-day period
   is extended by PBGC;

2. Starting with the quarterly contribution due on April 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;
   PLR-127008-16 2

3. 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 Code Section 412(c)(7)(B), in which case Taxpayer must copy
   PBGC on any correspondence with the IRS regarding notification of or
   application for such an exception;

4. 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;

5. Any contributions made to the Plan during 2016 and 2017 that are allocated to
   the 2016 plan year will reduce the waived amount for 2016 and as such, cannot
   be used to create a prefunding balance; and

6. In a timely manner, Taxpayer provides proof of payment of all contributions
   described above to the IRS and PBGC using the fax numbers or addresses
   below:

   IRS - EP Classification: TEGE:EP:7693

   ---

   Box 74, 400 North 8th Street, Room 998
   Richmond, VA 23219
   Fax: 877-801-3614

   Pension Benefit Guaranty Corporation
   Corporate Finance & Restructuring
   1200 K Street, N.W.
   Washington, DC 20005
   Fax: 202-842-2643

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
PLR-127008-16 3

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 is a privately owned manufacturer of products that are used to fabricate circuit
boards. Taxpayer has recently suffered a temporary substantial business hardship due
to its inability to qualify new products, increased price competition, and its choice to
compete in high margin product segments.

Taxpayer has implemented a series of actions to facilitate its long term improvement.
This includes hiring new leadership, increasing prices, reducing operating expenses and
material costs, reducing payroll, and reducing product complexity. Taxpayer believes,
and its financial projections illustrate, that its cash flow 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) of the Code has been met.

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.
PLR-127008-16 4

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,



                                   William Hulteng
                                   Acting Branch Chief
                                   Qualified Plans Branch 1
                                   Office of the Associate Chief Counsel
                                   (Tax Exempt & Government Entities)