Pension funding waiver conditions modified

Plain-English summary

An employer had previously received a waiver of its pension plan's minimum required contribution for the 2020 plan year while it faced temporary substantial business hardship and Chapter 11 reorganization. After emerging from bankruptcy in an improved financial position, it sought to accelerate the remaining waiver payments and later amend the plan. The IRS modified the waiver subject to nine conditions covering collateral, required contributions, quarterly payments, restrictions on benefit increases, proof of payment, and accelerated payment of the remaining amortization installments. Failure to satisfy the first six conditions generally makes the waiver retroactively void, although satisfying the final three conditions prevents a breach of the plan-amendment restriction from having that result. The letter leaves the statutory consequences of a benefit-increasing amendment in place.

Ruling snapshot

• Question: May the conditions on an existing minimum funding waiver be modified to permit accelerated payment and later plan changes?
• Outcome: Approved, subject to nine specified funding, collateral, reporting, and amendment conditions
• Key authorities: IRC §§ 412(c), 430(j); ERISA § 302; CARES Act § 3608(a)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202433005 Third Party Communication: None
Release Date: 8/16/2024 Date of Communication: Not Applicable
Index Number: 412.06-00
Person To Contact:
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--------------------------------------- Telephone Number:
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----------------- Refer Reply To:
-------------------------- CC:EEE:EB:QP2
PLR-122455-23
In Re: ---------------------------------------------------- Date:
------------------------------------------------------------ May 13, 2024

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

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

This letter constitutes notice that the conditions applicable to the waiver of the minimum
funding standard for the Plan (PLR-115183-20) previously granted for the plan year
ending December 31, 2020 (Plan Year) have been modified 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).

This waiver is contingent on Taxpayer’s satisfaction of all of the following conditions,
and the failure to satisfy conditions 1-6 renders this waiver retroactively null and void as
of the date the waiver is granted. However, if Taxpayer satisfies conditions 7-9, then a
failure to satisfy condition 4 will not result in this waiver being retroactively null and void
as of the date the waiver is granted.

 1. Collateral acceptable to the Pension Benefit Guaranty Corporation (PBGC) is
    provided to Plan for the full amount of the minimum funding waiver for the 2020
    plan year within 120 days from the date of the IRS ruling letter granting the
    waiver;

 2. Pursuant to section 3608(a) of the CARES Act, Pub. L. 116-136, and Notice
    2020-82, 2020-49 IRB 1458, Taxpayer will make a timely contribution to the Plan

PLR-122455-23 2

    in an amount sufficient to meet the minimum funding requirement for the Plan for
    the plan year ending December 31, 2019;

3. Starting with the quarterly contribution due on April 15, 2021, Taxpayer will make
   timely contributions equal to the required quarterly contributions to the 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, whenever applicable, sections 430(j)(3)(E)
   and 430(j)(4);

4. 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;

5. 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,
   2021, through December 31, 2025, by September 15, 2022 through September
   15, 2026, respectively;

6. Taxpayer provides proof of payment of all contributions described above to IRS
   and PBGC within (5) 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: 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]

However, the failure to meet Condition 4 (above) does not render this waiver
retroactively null and void as of the date the waiver is granted (but see § 412(c)(7)(A) for
rules regarding the consequences of a plan amendment described in Condition 4) if the
following additional conditions are met:

7. No later than January 15, 2024, the Taxpayer makes a contribution that, when

PLR-122455-23 3

   adjusted to January 1, 2024, in accordance with § 1.430(j)-1(b)(4) (using the
   Plan’s effective interest rate for the 2023 plan year), is equal to the amount of the
   remaining waiver amortization installments for 2024 and 2025.

8. This contribution may be used to satisfy the remainder of the minimum required
   contribution for the 2023 plan year, and may be added to the plan’s prefunding
   balance for 2024 to the extent contributions have been made that exceed the
   minimum required contribution for the 2023 plan year.

9. Taxpayer provides proof of payment this contribution to the IRS and PBGC within
   (5) business days of the payment, using the following fax numbers or addresses:

   IRS - EP Classification
   Mr. Chris Huxtable
   400 North 8th Street, Room 480
   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 § 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.

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 had been suffering from a temporary substantial business hardship due in
part to the cost of servicing its heavy debt obligations, and Taxpayer filed for a
reorganization under Chapter 11 of the Bankruptcy Code. It appeared likely that the
PLR-122455-23 4

Taxpayer would emerge from the reorganization with a substantially reduced debt load.
Taxpayer also provided detailed plans to cut costs and substantially invest in the
business in order to improve future prospects. As a result of these actions to facilitate
its long-term improvement, Taxpayer’s financial projections illustrated that its cash flows
would 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) were met, and the IRS granted a
waiver with respect to the minimum required contribution for the Plan Year on January

5. 2021.

Taxpayer has recently emerged from bankruptcy in an improved financial position, and
wishes to accelerate payment of the remaining funding waiver balance. As a result, the
previous waiver of the minimum funding standard for the Plan Year (PLR-115183-20)
has been modified in order to allow Taxpayer to do so and subsequently make changes
to the Plan without causing the waiver to be rendered retroactively null and void as of
the date the waiver was granted pursuant to Condition 4.

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. 2024-1, § 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. 2024-1, § 11.05.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences or other consequences of any aspect of any transaction or item
discussed or referenced in this letter.
PLR-122455-23 5

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,


                                    /s/ Linda Marshall

                                    Linda Marshall
                                    Senior Counsel
                                    Qualified Plans Branch 1
                                    Office of the Associate Chief Counsel
                                    (Employee Benefits, Exempt Organizations, and
                                    Employment Taxes)

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