A struggling employer wins a one-year waiver of its pension funding requirement, with strings attached

Plain-English summary

An employer that sponsors a defined benefit pension plan could not make its required minimum contribution for the plan year without serious financial strain. Code section 412(c) lets the IRS waive the minimum funding standard for a year when the employer faces a temporary substantial business hardship and enforcing the requirement would hurt plan participants overall. The IRS found the hardship standard met and approved a waiver of the remaining unpaid minimum contribution for that year. The approval comes with strict conditions: the employer must post collateral acceptable to the Pension Benefit Guaranty Corporation within 120 days, keep making timely quarterly contributions going forward, refrain from amending the plan to increase benefits while the waiver is in effect, meet minimum funding for later plan years on schedule, and prove each payment to the IRS and PBGC. Missing any condition makes the waiver retroactively void. This matters because a funding waiver gives a distressed employer breathing room to keep the plan alive rather than freezing or terminating it, while protecting the participants and the PBGC.

Ruling snapshot

• Question: Should the employer's minimum funding standard for the pension plan year be waived under § 412(c) on grounds of temporary substantial business hardship?
• Outcome: Approved (waiver granted subject to PBGC collateral, timely contributions, no benefit increases, and proof of payment)
• Key authorities: IRC § 412(c); ERISA § 302; IRC §§ 430(j), 412(c)(7)

Full text (IRS public release)

 Internal Revenue Service                                  Department of the Treasury
                                                           Washington, DC 20224

 Number: 202451002                                         Third Party Communication: None
 Release Date: 12/20/2024                                  Date of Communication: Not Applicable
 Index Number: 412.06-00
                                                           Person To Contact:
 -------------------------                                 ----------------------
 ----------------                                          Telephone Number:
 --------------------------------------------              --------------------
 -----------------------------                             Refer Reply To:
 --------------                                            CC:EEE:EB:QP2
 -----------------------                                   PLR-105543-24
                                                           Date:
 In Re: ---------------------------------------------------- September 20, 2024
 ------------------------




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


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

This letter constitutes notice that the waiver of the minimum funding standard for the
Plan for the plan year ending -------------------------- (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 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 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 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 -----------------------, Taxpayer will make
       timely contributions equal to the 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
PLR-105543-24                                     2

       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 Taxpayer must copy the PBGC on any
      correspondence with the Internal Revenue Service (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 ----------
      --------------------------, through --------------------------, by ---------------------------,
      through ---------------------------, respectively;

    5. Taxpayer provides proof of payment of all contributions described above to the
      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 Department
       445 12th Street, SW
       Washington, DC 20024-2101
       Email: [email protected]

The failure to meet any of these conditions will render this waiver retroactively null and
void as of the date the waiver is granted.

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
PLR-105543-24                                             3

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 in part
to the ------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
--------------------------------------. Taxpayer has outlined several measures being taken to
improve cash flow in the future, including --------------------------------------------------------------
---------------------------------------------------------------------------------. It appears likely that the
Taxpayer's planned measures will allow them to ----------------------------------------------------
--------------------------------, and allow Taxpayer to satisfy the Plan's funding obligation.

Based on the facts as represented by Taxpayer, the legal standard for a "temporary
substantial business hardship" pursuant to § 412(c) has been met.

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-105543-24                                             4

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,




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

Cc: -----------------------
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