Rev. Rul. 58-151

Advice has been requested concerning the application of the provisions of Part 5(f) of Revenue Ruling 57-163, C.B. 1957-1, 128, at page 149, concerning the granting of early retirement benefits under an employees' pension, annuity, profit-sharing, or stock bonus plan with the employer's consent where a prior favorable determination letter had been issued as to the qualification of such plan under section 401(a) of the Internal Revenue Code of 1954 (or section 165(a) of the 1939 Code) and the plan had conformed to requirements existing at that time.

Prior to the publication of Part 5(f) of Revenue Ruling 57-163, supra , the conditions and limitations on benefits which could be paid to a participant in an employees' pension, annuity, profit-sharing, or stock bonus plan before attaining the normal retirement age were set forth in Part 5(f) of Revenue Ruling 33, C.B. 1953-1, 267, at pages 282-283, which stated in part: `Where the benefits payable upon such early retirement meet the above conditions they will be acceptable even if no benefits would be vested if the employee's service were terminated at the time for other reasons, unless it appears from the facts in a particular case that the prohibited discrimination is likely to result because of the provisions for early retirement .' (Italics added for emphasis.) Thus, where a plan contained a provision for early retirement, the factor controlling qualification under section 165(a) of the 1939 Code (section 401(a) of the 1954 Code) is `prohibited discrimination.' Where it did not appear that such discrimination is likely to result, a favorable determination was made with respect to this issue.

In order to remove any element of uncertainty, an affirmative position was taken in Revenue Ruling 57-163, Part 5(f), supra , by holding that `Any reasonable optional early retirement age will generally be acceptable provided that, if the employer's consent is required, the value of the early retirement benefits does not exceed the value of the employee's vested benefits at that time.' Thus, every employee with similar credits must be granted benefits of equal value. This does not mean, however, that when an employer consents to early retirement benefits for an employee all employees who except for such consent satisfy the requirements for early retirement must also be granted immediate retirement benefits. The terms `vested benefits' and `immediate retirement benefits' are not synonymous. As pointed out in Part 5(j) of Revenue Ruling 57-163 supra , `Plans may include various modes of settlement for payment of benefits thereunder if under each mode of settlement the distribution has the same value as a distribution determined under any other mode of settlement provided for under the plan, and further, if upon retirement (or event calling for a distribution in a profit-sharing plan) each participant is entitled to a fully vested right in the amount which has been accumulated for his benefit.' Thus, where early retirement is permitted for one employee, another employee with similar credits need not be accorded similar treatment, provided that his credits are vested so as to entitle him to a deferred annuity, based on such credits plus any additional credits he may subsequently earn, commencing at normal retirement age or at actual retirement after attaining such age.

In the case of plans that are limited to employees other than those enumerated in section 401(a)(4) of the Code (in whose favor discrimination should never exist), the early retirement of employees before they acquire vested rights equal to the value of the benefits which, under the plan, are payable at the early retirement date, will not be deemed to be contrary to the requirements of section 401(a)(4) of the Code, regarding nondiscrimination in contributions or benefits. Thus, for example, such early retirement provision may be acceptable in a plan in which coverage is limited only to the hourly-rated employees, or where, in a plan covering salaried as well as hourly-rated employees, such provision is applicable only to employees whose remuneration does not exceed the Social Security maximum compensation limit ($4,200 per annum currently).

Also, where set standards for early retirement are prescribed and are uniformly applied and consistently followed, they may be acceptable, as in the case of pensions payable because of disability. See Part 5(k) of Revenue Ruling 57-163, supra . An example in this category would be a plan under which early retirement benefits are payable to all employees separated from service incident to a discontinuance of business operations at a particular locality, regardless of the extent of their otherwise vested rights.

Accordingly, Part 5(f) of Revenue Ruling 57-163, supra , to the extent it states that optional early retirement with the employer's consent will generally be acceptable if the value of the early retirement benefits does not exceed the value of the employee's vested benefits at that time, is modified as stated above, but is reaffirmed in all other respects.

Under the authority of section 7805(b) of the 1954 Code, the effect of Revenue Ruling 57-163, supra , as reaffirmed by this ruling, will not be applied retroactively to those plans containing a provision for early retirement with the employer's consent which are not in conformance with the aforesaid standards, but with respect to which favorable determination letters as to qualification under section 401(a) of the 1954 Code (or section 165(a) of the 1939 Code) had been issued prior to the publication of Revenue Ruling 57-163, supra . Such favorable determination letters will continue in effect unless and until revoked.