Rev. Rul. 68-160

The Internal Revenue Service has been asked whether the transfer of an annuity contract from a trust forming part of a qualified pension plan covering an owner-employee, to the bank custodian of another qualified pension plan covering the same individual, was a premature distribution for purposes of section 401(d) of the Internal Revenue Code of 1954 and section 1.402-12(m)(1) of the Income Tax Regulations.

An employer established a qualified, trusteed, employees' pension plan that covered an owner-employee. The trustee purchased an annuity contract to provide the benefits under the plan. Subsequently, the employer established another qualified pension plan with a bank acting as the custodian of the assets under the terms of the plan. The annuity contract was then transferred to the custodian of the second plan.

Section 401(d)(4)(B) of the Code provides, in effect, that a trust forming part of a pension plan that provides contributions or benefits for employees, some or all of whom are owner-employees, shall constitute a qualified trust only if, among other conditions, the plan does not permit distributions to be made on behalf of any owner-employee before he attains age 59 1/2 or becomes disabled. Section 1.401-12(m)(1) of the regulations indicates that an amount is prematurely distributed or made available, within the meaning of section 401(d) of the Code, if it is paid to or on behalf of such a participant before he attains age 59 1/2 or becomes disabled.

Revenue Ruling 67-213, C.B. 1967-2, 149, holds, in effect, that where the interests of participants are transferred from a trust forming part of one qualified plan to a trust forming part of another qualified plan, no amounts will be considered distributed or made available to the participants; therefore, no taxable income will be recognized to them by reason of the transfer. To the same effect Rev. Rul. 55-368, C.B. 1955-1, 40, and Rev. Rul. 55-427, C.B. 1955-2, 27.

Although those Revenue Rulings deal with the taxability of the participants under section 402 of the Code, the same criteria are applicable in determining whether a distribution has been made for purposes of section 401(d) of the Code and section 1.401-12(m)(1) of the regulations.

Accordingly, it is held that the trustee's transfer of the annuity contract in the instant case to the bank custodian of the second qualified pension plan did not result in amounts being distributed or made available to the owner-employee and therefore was not a premature distribution for purposes of section 401(d) of the Code and section 1.401-12(m)(1) of the regulations.