Rev. Rul. 58-604

A series of questions have been presented to the Internal Revenue Service relative to the nonretroactive application of Part 5(f) of Revenue Ruling 57-163, C.B. 1957-1, 128, at 149, as modified by Revenue Ruling 58-151, C.B. 1958-1, 192.

Part 5(f) of Revenue Ruling 57-163, supra , published April 22, 1957, concerns the granting of optional retirement under an employees' pension, annuity, profit-sharing, or stock bonus plan prior to normal retirement age and holds, in part, 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. Prior to the publication of that ruling, the early retirement benefits were not limited to an employee's vested interest provided the prohibited discrimination was not likely to result.

Revenue Ruling 58-151, supra , modified that portion of Part 5(f) of Revenue Ruling 57-163, supra , but reaffirmed it in all other respects and held that the effect of that ruling, as reaffirmed, 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 this standard but with respect to which favorable determination letters as to qualification under section 401(a) of the Internal Revenue Code of 1954 (or section 165(a) of the 1939 Code) had been issued prior to April 22, 1957. Such favorable determination letters would continue in effect unless and until revoked.

The questions concerning the manner in which the nonretroactive application of Part 5(f) of Revenue Ruling 57-163, supra , will affect the qualification of employee pension, annuity, profit-sharing, or stock bonus plans and the issuance of determination letters thereon, and the answers to these questions, are as follows:

Question 1. Must an employer who amends any provision of its plan after April 21, 1957, also amend the early retirement provision to conform with Part 5(f) of Revenue Ruling 57-163, supra , in order to maintain the qualified status of the trust forming a part of such plan under section 40(a) of the Code?

Answer. No; unless the District Director of Internal Revenue having jurisdiction in the case finds that the discretionary powers with respect to optional early retirement prior to normal retirement age granted by such plan have been exercise, in the prior operation of the plan, in such a way as to have resulted in the discrimination which is prohibited by section 401(a)(4) of the Code.

Question 2. May a favorable determination letter as to the qualification of an employees' plan be issued to a wholly-owned subsidiary which, after April 21, 1957, became a party to the plan of its parent corporation, without amending the early retirement provision of the plan, as to such subsidiary, to conform with Part 5(f) of Revenue Ruling 57-163, supra?

Answer. No. With respect to a single trust or plan for employees adopted by a group of affiliated or nonaffiliated employers, the provisions of the Code, in regard to qualifying under section 401(a) thereof, are applicable to each such employer separately, regardless of the affiliated status of the participating or adopting group. See the fourth paragraph of PS No. 14, dated August 24, 1944, which was continued in effect by Revenue Ruling 57-163, C.B. 1957-1, 128, at 154.

Question 3. May an employer, who amended the early retirement provision of its employees' plan prior to the publication of Revenue Ruling 58-151, supra , solely to comply with Part 5(f) of Revenue Ruling 57-163, supra , now revoke such amendment without adversely affecting the qualified status of the trust forming a part of the plan under section 401(a) of the Code?

Answer. Yes, unless, and except where the District Director of Internal Revenue having jurisdiction in such case finds that the discretionary powers granted by the plan with respect to optional early retirement have been exercise, in the prior operation of the plan, in such a way as to have resulted in the discrimination prohibited by section 401(a)(4) of the Code.