3748 / Can the minimum funding standard for qualified plans be waived?

Under limited circumstances, the IRS may grant a waiver of the minimum funding standard. To obtain such a waiver, the employer sponsoring the plan must demonstrate that imposition of the 100 percent tax would be a substantial business hardship and adverse to the interest of plan participants in the aggregate.¹ Updated procedures for requesting a waiver of the 100 percent tax are set forth in Revenue Procedure 2004-15.² In 2017, the IRS issued Revenue Procedure 2017-4, which eliminated the alternative of requesting a determination letter in conjunction with a minimum funding waiver.³ The IRS may still grant a waiver contingent on certain conditions being met. If they are not met, the waiver is void retroactively. An employer sponsoring a plan may request a modification of a conditional waiver of the minimum funding requirements by private letter ruling request.⁴ The IRS has privately ruled that waiver is appropriate where the hardship is likely to be temporary,⁵ but not where the hardship is of a permanent nature.⁶ Under certain circumstances, the IRS may approve a retroactive plan amendment reducing plan liabilities due to substantial business hardship.⁷

Employers sponsoring certain terminated single-employer defined benefit plans may obtain a waiver of the 100 percent tax imposed on an accumulated funding deficiency. To obtain the waiver, these conditions must be met:

(1)  the plan must be subject to Title IV of ERISA,

(2)  the plan must be terminated in a standard termination under ERISA Section 4041,

(3)  plan participants must not be entitled to any portion of residual assets remaining after all liabilities of the plan to participants and their beneficiaries have been satisfied,

(4)  excise taxes that have been (or could be) imposed under IRC Section 4971(a) must have been paid for all taxable years (including the taxable year related to the year of plan termination), and

(5)  the plan must have filed all applicable forms in the 5500 series (including Schedule B) for all plan years (including the year of plan termination).⁸

See Q 3743 for overview information on the relief as to the required minimum contribution by MAP-21 and HAFTA 2014.