Rev. Rul. 68-436

Advice has been requested whether a qualified employees' retirement plan that provides benefits for a sole proprietor must include the sole proprietor's wife, who is a bona fide, full-time employee of the sole proprietorship.

A sole proprietorship established a retirement plan that provided benefits for the owner-employee and all common-law employees. The owner-employee's wife is a bona fide, full-time employee of the proprietorship.

Section 401(d)(3) of the Internal Revenue Code of 1954 provides that a trust forming part of a pension or profit-sharing plan which provides contributions or benefits for employees some or all of whom are owner-employees shall constitute a qualified trust only if the plan of which it is a part benefits each employee having a period of employment of three years or more. For purposes of section 401(d)(3), the term "employee" does not include any employee whose customary employment is not for more than 20 hours in any one week or not more than five months in any calendar year. See also section 1.401-12(e)(1) of the Income Tax Regulations.

Although a wife is not eligible for social security coverage with respect to employment in the business of her husband, she is to be included in the plan in which her husband is a participant if she meets the requirements of section 401(d)(3) of the Code and section 1.401-12(e)(1) of the regulations.

Accordingly, the wife is to be included in the instant plan and the contributions on her behalf will be at the same rate as for all of the other participants based on compensation actually paid to her, which must be reasonable for the services rendered.