Rev. Rul. 67-288

Advice has been requested whether a provision in a profit-sharing plan permitting loans by the related trust to employee-participants in amounts which may be in excess of their vested interests will adversely affect the qualification of the plan under section 401(a) of the Internal Revenue Code of 1954 and the exempt status of the trust under section 501(a).

An employer adopted a trusteed profit-sharing plan intended to qualify under section 401(a) of the Code. Under the terms of the trust agreement, loans may be granted in a uniform and nondiscriminatory manner to employee-participants in amounts which may be in excess of their vested interests. Each such loan must be adequately secured, bear a reasonable rate of interest, and be repaid within a specified period of time.

Section 401(a) of the Code requires that the trust be for the exclusive benefit of employees or their beneficiaries.

Section 1.401-1(b)(5)(i) of the Income Tax Regulations provides that there are no specific limitations in section 401(a) of the Code with respect to investments which may be made by the trustee of a trust qualifying under that section.

Part 5(o) of Revenue Ruling 65-178, C.B. 1965-2, 94, states that loans may be made to participants up to the extent of their vested interests subject to the application of specified uniform rules consistently applied. It is silent regarding loans in excess of a participant's vested interest.

In the instant case the plan provides that any loan made by the trust must be adequately secured, bear a reasonable rate of interest, and be repaid within a specified period of time. Under these circumstances, such a loan would not contravene the requirement that the trust funds be used for the exclusive benefit of the employees or their beneficiaries.

Accordingly, in the instant case the qualification of the plan under section 401(a) of the Code and the exempt status of the trust under section 501(a) of the Code will not be adversely affected by the provisions of the trust instrument which permit the granting of loans to employee-participants in amounts which may exceed their vested interests, provided that the `exclusive benefit of employees' requirement is otherwise met in all respects.

Part 5(o) of Revenue Ruling 65-178 is hereby amplified.