Rev. Rul. 61-147

1. Introduction .-Section 1.401-3(e) of the Income Tax Regulations provides that if a classification of employees under a plan results in relatively or proportionately greater benefits for employees earning above any specified salary amount or rate than for those below such salary amount or rate, it may be found to be discriminatory within the meaning of section 401(a)(3)(B) of the Internal Revenue Code of 1954. It is further provided, however, that if the relative or proportionate differences in benefits which result from such classification are approximately offset by the benefits which are provided by the Social Security Act, or by other Federal or State laws, and which are not attributable to employee contributions thereunder, the plan will not be considered discriminatory merely because of such differences. See also section 1.401-4(b) of the regulations.

Guides for determining whether a plan is integrated with the benefits provided under the Railroad Retirement Act as amended through 1960 are set forth below.

2. Definitions .-Where used herein certain terms will have the meaning indicated below:

(a) The term `plan' means a pension plan as defined in section 1.401-1(b)(1)(i) of the regulations, or an annuity plan as defined in section 1.404(a)-3(a) of the regulations, and in which benefits are related to service for an employer as defined in part I section 1 of the Railroad Retirement Act, 45 U.S.C., Sec. 228a as amended.

(b) The term `service' refers to service for the employer providing the plan and may include service for associated employers joining in the plan so that their employees are covered by the same plan.

(c) The term `integrated' as applied to a plan or benefits under a plan means that differences in proportionate benefits favoring employees earning above any specified rate of compensation as compared with those earning below such rate resulting from a classification and/or difference in benefit rates under such plan will be considered approximately offset by the Railroad Retirement Act benefits which are not attributable to employee contributions thereunder, so that the plan is not considered discriminatory under the provisions of the regulations referred to in paragraph 1 by reason of such differences.

(d) The term `$4,800 excess plan' means a plan under which employees earning less than $4,800 a year are excluded from benefits, either by an eligibility requirement or by a benefit formula basing benefits only on compensation in excess of $4,800 a year.

3. Basic rule for plans meeting certain conditions .-A $4,800 excess plan is integrated with the benefits under the Railroad Retirement Act if the rate of normal annual retirement benefits under the plan for each year of credited service cannot exceed 1.75 percent of annual compensation in excess of $4,800, provided that the plan conforms to all of the following conditions:

(a) The rate of normal retirement benefit for each year of credited service is applied to the actual compensation (or some lower amount) in excess of $4,800 for each year of such service, past or future.

(b) There are no benefits payable in case of death before retirement.

(c) The normal form of retirement benefit is a straight life annuity payable only to the retired employee.

(d) Normal retirement age is not lower than age 65 for men and not lower than age 60 for women and, if benefits of any kind are payable in case of retirement or severance of employment before normal retirement age, such benefits are appropriately adjusted in accordance with paragraph 10.

(e) The employees do not contribute.

4. Benefits based on compensation, other than actual compensation, in excess of $4,800 .-A $4,800 excess plan which conforms to all the conditions of paragraph 3, except that benefits are based on compensation other than actual compensation in each year of credited service, is integrated:

(a) If the rate of normal retirement benefit for each year of credited service does not exceed 1.40 percent of the annual compensation in excess of $4,800 averaged over a definite period of at least 10 consecutive years; or

(b) If the rate of normal retirement benefit for each year of credited service does not exceed 1.15 percent of the annual compensation in excess of $4,800 averaged over a definite period of at least 5 (but less than 10) consecutive years; or

(c) If the rate of normal retirement benefit for each year of credited future service does not exceed 1.75 percent of the actual compensation in excess of $4,800 in each year of credited future service and the rate of normal retirement benefit for each year of credited prior service does not exceed

(i) 1.40 percent of the annual compensation in excess of $4,800 averaged over a definite period of at least 10 consecutive years prior to the date on which an employee becomes eligible for membership in the plan; or

(ii) 1.15 percent of the annual compensation in excess of $4,800, as of the date on which an employee becomes eligible for membership in the plan, or as of some definite earlier date, or averaged over a definite period of less than 10 consecutive years.

For the purposes of this paragraph 4, it is not acceptable to define the definite period as the period which will produce the highest average compensation, or to define the definite date as the date on which compensation was highest. However, for the purposes of this paragraph, a specified number of consecutive years, ending at actual retirement, or at the earlier of actual retirement or normal retirement age, or at the age 5 years before the earlier of actual retirement or normal retirement age, is acceptable.

5. Benefits in case of disability before normal retirement age .-A $4,800 excess plan which conforms to the conditions of paragraph 3, 4(a), 4(b), or 4(c), except that it provides for an immediate life annuity benefit, in case of severance due to disability occurring before normal retirement age, equal to the normal retirement benefit accrued on account of service rendered prior to such severance, is integrated if the eligibility conditions necessary for payment of such disability benefits under the plan are substantially equivalent to the conditions necessary for payment of disability benefits under the Railroad Retirement Act and if the rate of normal annual retirement benefit for each year of credited service does not exceed 90 percent of the rate or rates determined from whichever of such paragraphs is applicable.

6. Benefits in case of death before retirement .-A $4,800 excess plan which conforms to the conditions of paragraph 3, 4(a), 4(b), 4(c), or 5, except that it provides benefits in case of death before retirement not exceeding the higher of the reserve or the total prior contributions on a typical individual level annual premium funding method (and no other death benefits or life insurance except those for which the current cost is included in the income of the employee), is integrated if the rate of normal retirement benefit for any employee does not exceed 8/9 of the rate or rates specified in whichever of such paragraphs is applicable.

7. Normal form of retirement benefit an annuity for 10 years certain and life thereafter .-A $4,800 excess plan which conforms to the conditions of paragraph 3, 4(a), 4(b), 4(c), 5, or 6, except that the normal form of retirement benefit is an annuity for 10 years certain and life thereafter is integrated if the rate of normal annual retirement benefit for each year of credited service does not exceed 90 percent of the rate or rates determined from whichever of such paragraphs is applicable.

8. Widow's benefit payable in the event of death after the employee's normal retirement age or date, equal to one-half of the benefit payable to the retired employee .-A $4,800 excess plan which conforms to the conditions of paragraph 3, 4(a), 4(b), 4(c), 5, or 6, except that, in the event of the death of any retired employee, when such death occurs after the retired employee's normal retirement age or date, a straight life annuity will be paid to the employee's widow in an amount equal to one-half of the retirement benefit payable to the retired employee, without regard to the age of the employee's widow, is integrated if the rate of normal retirement benefit, for any married employee, for each year of credited service, does not exceed 80 percent of the rate or rates determined from whichever of such paragraphs is applicable.

9. Widow's benefit, payable in the event of death of an active or retired employee, equal to one-half of the employee's retirement benefit or one-half of the employee's accrued benefit, according to whether the employee was retired or active at the time of his death .-A $4,800 excess plan which conforms to the conditions of paragraph 3, 4(a), 4(b), 4(c) or 5, except that, in the event of the death of any active or retired employee, a straight life annuity will be paid to the employee's widow in an amount equal to one-half of the employee's retirement benefit or one-half of the employee's accrued benefit, according to whether the employee was retired or active at the time of his death, without regard to the age of the employee's widow, is integrated if the rate of normal retirement benefit for any married employee, for each year of credited service, does not exceed 70 percent of the rate or rates determined from whichever of such paragraphs is applicable.

10. Retirement or severance benefits beginning before age 65 (60 for women) .-If a $4,800 excess plan provides benefits attributable to employer contributions in case of retirement or severance of employment before age 65 for men or 60 for women, and if such retirement or severance benefits are not on account of disability as defined in paragraph 5, then in order for such plan to be integrated, such retirement or severance benefits cannot exceed the actuarial equivalent at the time of retirement or severance of the maximum benefits accrued to the time of such retirement or severance, determined in accordance with whichever of the preceding paragraphs is applicable. Where such early retirement or severance benefits are paid in the form of an annuity beginning before age 65 (60 for women) this requirement will be considered satisfied if the annual benefits on such early retirement or severance do not exceed such maximum accrued benefits reduced by one-fifteenth thereof for each year that the age of the employee at the time such benefits begin is less than age 65 (60 for women), or are equal in value to the reserve for normal retirement benefits accumulated under a typical level premium funding method or unit credit cost method.

11. Increase for employee contributions .-A contributory $4,800 excess plan is integrated if the annual retirement benefit of any employee whose benefits do not commence before age 65 (60 for women) cannot exceed the applicable amount determined in accordance with the above guides, increased by one-tenth of his aggregate contributions exclusive of those applicable to the current cost of insurance or death benefits in excess of the reserve or cash value . If the benefits commence before age 65 (60 for women) such increase must be reduced by one-fifteenth for each year that the age of the employee at the time of commencement of such benefits is less than 65 (60 for women). Such increases are applicable regardless of the form of retirement benefit or provision for death benefits. It should be noted that where the plan provides for return of only employee contributions and interest thereon in case of death before or after retirement, such as when the retirement benefits are on a modified cash refund form, a reduction in otherwise allowable limits on account of such death benefits is not required. It should further be noted that if the increase for employee contributions is expressed in the form of a percentage of compensation, such percentage must be applied to the same compensation as such contributions were, even though compensation averaged over a shorter period is used as the basis for benefits attributable to employer contributions.

12. Money purchase plans .-A $4,800 excess plan which provides benefits with respect to service after the inception of the plan from employer contributions of a fixed amount or fixed percentage of each employee's compensation after the effective date of the plan is integrated if (a) the rate of employer contributions used for the benefit of any employee cannot exceed in any year 13 percent of such employee's actual compensation in excess of $4,800 in that year, and (b) the benefits for prior service of any employee do not exceed the amounts acceptable for prior service credits, as set forth in whichever of the preceding paragraphs is applicable.

13. Offset plans .-The term `offset plan' means a plan in which no employee and no portion of compensation is explicitly excluded by reason of a minimum compensation requirement and in which all the provisions including the benefit rates apply uniformly to all covered employees regardless of compensation except that the benefits otherwise provided by the plan formula are reduced or offset by a percentage of the employee's retirement annuity under the Railroad Retirement Act. An offset plan which conforms to conditions (b), (c), and (e) listed in paragraph 3 is integrated if the offset does not exceed 90 percent of the retirement annuity for which the employee is immediately eligible under the Railroad Retirement Act as amended through 1960. If the plan is as descrbed in the 1960. If the plan is as described in the it provides for death benefits of the form described in paragraph 6, the offset must not exceed 80 percent of such retirement annuity. If the plan is as described above except that the normal form of retirement benefit is an annuity for 10 years certain and life thereafter, the offset must not exceed 81 percent if the plan does not include death benefits of the form described in paragraph 6, or 72 percent if the plan does include such death benefits. If the plan is as described above but provides for benefits described in any of the other preceding paragraphs, the offset must not exceed 90 percent, adjusted in accordance with the guides or factors in whichever of such paragraphs are applicable.

14. Permissible minimum benefits .-A plan is integrated if it conforms to the guides set forth in paragraphs 3 through 13 except that it provides a minimum retirement benefit not in excess of $240 a year, or $8 a year per year of service, plus increase for employee contributions as set forth in paragraph 11, or for minimum employer contributions with respect to any employee of $60 a year. However, such minimum is not to be used as a tolerance and may not be taken into account in determining whether higher benefits conform to the above guides. These limits on minimum benefits do not apply where (a) there is no minimum compensation requirement for obtaining the minimum benefits, and (b) the formula for determining the minimum benefits does not involve integration requirements in any other way.

15. Optional forms of benefits .-No adjustment is required to the rate or rates determined in accordance with whichever of the preceding paragraphs are applicable, on account of optional forms of benefits available under the plan, if the payments under the optional forms are determined as the actuarial equivalent of the normal form of benefit.

16. Applicability of Revenue Ruling 12, C.B. 1953-1, 290 .-A $3,600 excess plan, as defined in Revenue Ruling 12, C.B. 1953-1, 290, will be considered integrated with the benefits provided under the Railroad Retirement Act if it conforms to the provisions of that ruling. The limits contained in that ruling may also be applied in the case of a plan under which employees earning less than $4,200 a year are excluded from benefits, by substituting $4,200 for $3,600 wherever it appears in that ruling.

A plan will also be considered integrated with the benefits provided under the Railroad Retirement Act if that portion of the benefits prior to any specified date conforms to the provisions of Revenue Ruling 12, and that portion of the benefits attributable to service subsequent thereto satisfies the applicable provisions of this ruling.