Rev. Rul. 56-633

Advice has been requested whether an employees' annuity plan may meet the requirements of section 401(a)(3), (4), (5), and (6) of the Internal Revenue Code of 1954, if it is funded by a contract with an insurance company which provides retirement annuity benefits and, in addition, provides separate group term life insurance and accident and health insurance. Such a contract is to be distinguished from a retirement income, endowment, or other life insurance contract.

An employer established a nontrusteed annuity plan for the benefit of his employees. The retirement annuity benefits provided in the plan are similar to those often provided under group annuity contracts, but are funded by means of a contract which also provides separate group term life insurance and accident and health insurance. The contract is of the type considered in Revenue Ruling 55-193, C.B. 1955-1, 266, and, in addition, provides separate accident and health insurance. Separate premiums are specified for each type of benefit, separate reserves are maintained by the insurance company, and no portion of the reserve for annuity benefits can be applied to provide insurance benefits.

Section 404(a)(2) of the Code provides that contributions of an employer toward the purchase of retirement annuities under a plan which meets certain conditions, including the requirements of section 401(a)(3), (4), (5), and (6), of the 1954 Code, shall be deductible by the employer, subject to certain specified limitations.

It is held that an annuity plan established by an employer for the benefit of his employees, which is funded by means of a contract with an insurance company which contains, in addition to the retirement annuity benefits, provisions for separate group term life insurance and accident and health insurance may, with regard only to the annuity portion of the contract, if otherwise satisfactory, meet the requirements of section 401(a)(3), (4), (5), and (6) of the Code. See Rev. Rul. 55-193, C.B. 1955-1, 266.

Only the premiums paid by the employer for the annuity benefits are deductible under section 404 of the Code. The deduction of the premiums for the separate group life insurance and accident and health insurance is governed by section 162 of the Code.

For the purpose of applying the provisions, of section 72 of the Code, in determining the taxation of the annuity benefits under section 403(a)(1) or section 403(b) of the Code, only the contributions for the annuity benefits, paid by the employee (or employer contributions which are included under the provisions of section 72(f)), shall be included as consideration paid. No part of the separate premiums for the life insurance or accident and health insurance may be included for this purpose.