Pension minimum funding waiver approved with conditions

Plain-English summary

An employer sought a waiver of the remaining unpaid minimum required contribution for its pension plan's 2018 plan year. The IRS found that project-related problems had caused a temporary substantial business hardship and that the employer's corrective actions and projections showed it could meet future obligations. It approved the waiver subject to seven conditions, including providing collateral acceptable to the Pension Benefit Guaranty Corporation, making quarterly and annual contributions on time, preserving prior contribution allocations, and avoiding benefit increases while the waiver remains in effect. Failure to meet any condition makes the waiver retroactively void. The waiver may also be reconsidered if the employer seeks another waiver for the following plan year.

Ruling snapshot

• Question: Did the employer qualify for a waiver of its pension plan's 2018 minimum funding requirement because of temporary substantial business hardship?
• Outcome: Approved, subject to seven funding, collateral, reporting, and plan-amendment conditions.
• Key authorities: IRC §§ 412(c) and 430(j); ERISA §§ 302(c)(7) and 303.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201948003 Third Party Communication: None
Release Date: 11/29/2019 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-103682-19
In Re: ---------------------------------------------------- Date:
------------------------------------------------------------ August 27, 2019

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

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

This letter constitutes notice that the waiver of the minimum funding standard for the
Plan for the plan year ending December 31, 2018 (“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 (the Code). This waiver is conditioned on the 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. In addition, this waiver is
eligible for reconsideration or revision if Taxpayer submits an application for a waiver of
the minimum funding standard for the Plan for the plan year ending December 31, 2019.

1. Collateral acceptable to the Pension Benefit Guaranty Corporation (PBGC) is
   provided to the 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 contribution due April 15, 2020, Taxpayer makes
   timely contributions equal to the required quarterly contributions to the Plan while
   a waiver under section 412(c) of the Code is in effect with respect to the Plan.
   For this purpose, the total amount of each quarterly contribution will be

PLR-103682-19 2

  determined in accordance with section 430(j)(3)(D) and whenever applicable,
  sections 430(j)(3)(E) and 430(j)(4);

3. Under section 412(c)(7), 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
  section 412(c)(7)(B), in which case the Taxpayer must copy the 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, 2019 through December 31, 2023, by September 15, 2020
  through September 15, 2024, respectively;

5. Any contributions which are allocated to the Plan Year as stated in Taxpayer’s
  2018 minimum funding waiver application must remain allocated to the Plan Year
  and are not considered waived;

6. No contributions made to the Plan for the Plan Year are added to the prefunding
  balance of the Plan;

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

  IRS – Classification Group: SE:T:GESS:CP&C:C&CA:C
  -------------------------
  Box 74, 400 North 8th Street, Room 998
  Richmond, VA 23219
  Fax: 877-751-6769

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

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

PLR-103682-19 3

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) 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 recently suffered a temporary substantial business hardship due to issues
arising from certain projects it was involved in that 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) 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 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. 2019-1, § 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. 2019-1, § 11.05.

PLR-103682-19 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,

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