Rev. Rul. 69-158

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in I.T. 3678, C.B. 1944, 321. This ruling relates to whether, under the circumstances described below, a profit-sharing plan meets the nondiscrimination requirements of section 401(a)(4) of the Internal Revenue Code of 1954 and section 1.401-4(a) of the Income Tax Regulations.

A manufacturing company has 6,000 employees. Two thousand of these employees are covered under a profit-sharing plan that provides benefits for all employees who have been with the company for at least two years. The plan makes provision for two groups of participants. The first group consists of certain employees who are officers, shareholders, supervisors, or highly compensated. The second group consists of all other participating employees. Under the contribution formula set forth in the plan, benefits are provided for the first group by contributions equal to 20 percent of the employee's annual basic compensation and for the second group by contributions equal to 10 percent of such compensation.

Section 401(a)(4) of the Code and section 1.401-4(a) of the regulations provide that a trust forming part of a profit-sharing plan of an employer will not be a qualified trust if the contributions or benefits provided under the plan of which it is a part discriminate in favor of employees who are officers, shareholders, supervisors, or highly compensated.

Since the contribution formula in this plan expressly permits a larger rate of contributions for the employees in whose favor discrimination is prohibited than for other employees, it is held that the profit-sharing plan in this case does not meet the non-discrimination requirements of section 401(a)(4) of the Code or section 1.401-4(a) of the regulations.

I.T. 3678 is hereby superseded, since the position stated therein is restated under the current law in this Revenue Ruling.

¹ Prepared pursuant to Revenue Procedure 67-6, C.B. 1967-1, 576.