Rev. Rul. 55-276

Advice has been requested whether a pension plan maintained jointly by more than one employer (regardless of their affiliated status) will fail to qualify under section 165(a) of the Internal Revenue Code of 1939 if, in order to be eligible for benefits, the compensation of employees working for more than one of the participating employers is considered as the total compensation received from all such employers.

In an assumed case, the X, Y , and Z corporations are participants in a joint annuity contract. The contract provides an integrated $3,600 excess plan, i.e. , pension based on salary in excess of $3,600 per annum. Employees A, B , and C are employed by all three corporations receiving an annual salary of $3,000 from X corporation, $2,000 from Y corporation, and $1,000 from Z corporation.

In this case the question arises as to whether employees A, B , and C should be excluded from the plan, since they do not receive compensation in excess of $3,600 from any one of the contracting corporations, while all others employed at an annual salary of $6,000 by any one of the participating corporations would receive pension benefits based on their $2,400 excess salary.

The applicable portion of section 39.165-1(b) of Regulations 118, pertaining to affiliated corporations, states that a trust forming part of a plan of affiliated corporations for their employees may be exempt if all the requirements are otherwise satisfied.

PS No. 14 August 24, 1944 provides, in part:

An employees' trust may be exempt from Federal income tax under section 165(a) of the Code even though several corporations make contributions thereto, and whether or not such corporations are members of an `affiliated group' as defined in section 141(d), provided all the requirements of section 165(a) of the Code, and the regulations promulgated thereunder, are otherwise satisfied with respect to each of the participating corporations and its employees, the provisions in regard to qualifying under section 165(a) as aforesaid, as well as the deduction provisions of section 23(p) of the Code, being applicable to each employer separately, regardless of the affiliated status of the participating group.

In the case of a pension plan maintained jointly by more than one employer, whether or not they are affiliated corporations, where employees covered by the plan may receive compensation from more than one of the participating employers, it is held that the discrimination prohibited by section 165(a) of the Code and the regulations promulgated thereunder will not result merely because the annual compensation used as a basis for determining an employee's eligibility or benefits in the plan is defined as the total of annual compensation received by that employee from all employers participating in the plan. Thus the above-described plan need not be considered discriminatory within the meaning of section 165(a) merely because for the purpose of determining eligibility and benefits of employees A, B , and C each employee's annual compensation is regarded as $6,000. Also, it is held that such treatment is consistent with the principle set forth in PS No. 14, so long as there is a proper allocation of the costs of the resulting benefits among the participating employers