Rev. Rul. 68-244

Advice has been requested whether the percentage of total employees covered and the percentage of employees in whose favor discrimination is prohibited in relation to total covered employees participating under the plan described in Revenue Ruling 66-12, C.B. 1966-1, 72, were the sole factors in determining that the classification of employees under that plan met the nondiscriminatory coverage requirement of section 401(a)(3)(B) of the Internal Revenue Code of 1954.

Revenue Ruling 66-12 involves a pension plan that limited participation to salaried employees. It was found that participation by 26 out of 109 employees (where 11 of the participants were either officers, shareholders, persons whose principal duties consist in supervising the work of other employees, or highly compensated employees) was not discriminatory within the meaning of section 401(a)(3)(B) of the Code. Aside from a reference to the alternative coverage provision of section 401(a)(3)(A) of the Code, the Revenue Ruling does not mention percentages of employees.

Although 26 of 109 employees, or 23.9 percent, were covered and 11 of the 26, or 42.3 percent, were persons on whose behalf discrimination is prohibited, an inference that the conclusion was based solely on such percentages is not warranted. The determination that the plan in that case was not discriminatory was based on all the surrounding facts and circumstances, not merely on percentages. This was also true in the case of I.T. 3614, C.B. 1943, 476, where only 100 of 1,000 employees or 10 percent were covered and yet coverage was found to be nondiscriminatory.

Accordingly, the percentage of total employees covered and the percentage of employees in whose favor discrimination is prohibited in relation to total employees participating under a plan are not the sole factors in determining whether a classification meets the nondiscriminatory coverage requirement of section 401(a)(3)(B) of the Code.

Revenue Ruling 66-12 is clarified.