Rev. Rul. 69-371

The Internal Revenue Service has been asked whether the transitional provisions contained in section 20 of Revenue Ruling 69-4, C.B. 1969-1, 118, regarding the integration of pension, annuity, profit-sharing, and stock bonus plans with old-age and survivors insurance benefits provided under the Social Security Act, are applicable in the situations described below.

Situation 1

Prior to July 6, 1968, Company X adopted and executed a pension plan that meets the applicable requirements of section 19.01 of Revenue Ruling 69-4. X subsequently acquired all of the stock of Company Y. Y was then liquidated and became a division of X. Effective August 1, 1968, all employees of the new division commenced participation in the pension plan of X, and in accordance with Revenue Ruling 62-139, C.B. 1962-2, 123, they qualified for and received credit, for pension purposes, for all service with Y.

In accordance with section 20.03 of Revenue Ruling 69-4, total service for these employees means all service with X plus the additional service with Y for which credit is given under the plan. Furthermore, since the pension plan of X was in effect and met the applicable requirements of section 19.01 of Revenue Ruling 69-4 on July 5, 1968, any date no later than December 31, 1971, may be specified as the date the plan will conform to the applicable provisions of section 20.01 or 20.02 of that Revenue Ruling.

Situation 2

Prior to July 6, 1968, Company X adopted and executed a pension plan that meets the applicable requirements of section 19.01 of Revenue Ruling 69-4. X subsequently acquired all of the stock of Company Y. Y was then liquidated and became a division of X. Effective August 1, 1968, a separate pension plan with employer-provided benefits identical to those of X's plan was adopted for the division. The separate pension plan satisfied the requirements of Revenue Ruling 62-139 so that all employees of the new division qualified for and received credit, for pension purposes, for all service with Y.

Since the benefits for employees of the division are identical to those that would be provided if the division instead participated in the original pension plan of X, it is held that the provisions of section 19.01 of Revenue Ruling 69-4 are applicable in this situation, so that any date no later than December 31, 1971, may be specified as the date the division's plan will conform to the applicable provisions of section 20.01 or 20.02 of that Revenue Ruling.

On the other hand, if the employer-provided benefits for the employees of the division were not identical to those that are provided in the pension plan of X, the provisions of section 19.01 of Revenue Ruling 69-4 would not be applicable. The separate plan for the employees of the division would then be integrated only if it satisfied in all respects the applicable requirements of section 1.401-3(e)(2) of the Income Tax Regulations, as amended by T.D. 6982, C.B. 1968-2, 168, and of sections 3 though 18 of Revenue Ruling 69-4.

Situation 3

Prior to July 6, 1968, Company X adopted and executed a pension plan that meets the applicable requirements of section 19.01 of Revenue Ruling 69-4. X subsequently acquired all of the stock of Company Y. However, unlike situations 1 and 2, Y was not liquidated but continued as a subsidiary of X. Following the acquisition of Y, X amended its plan to define service as including all years of service with Company X and Company Y (both prior and subsequent to becoming a subsidiary of Company X), an acceptable definition under section 20.03 of Revenue Ruling 69-4. Y adopted the plan as amended. Effective August 1, 1968, all employees of Y commenced participation in the amended pension plan. In accordance with Revenue Ruling 62-139, these employees qualified for and received credit, for pension purposes, for all years of service with Y prior to its becoming a subsidiary of X.

In accordance with section 20.03 of Revenue Ruling 69-4, total service for these employees means all service with X and Y. Furthermore, since the pension plan of X was in effect and met the applicable requirements of section 19.01 of Revenue Ruling 69-4, any date no later than December 31, 1971, may be specified as the date the plan will conform to the applicable provisions of section 20.01 or 20.02 of that Revenue Ruling.

Situation 4

Prior to July 6, 1968, Company X adopted and executed a pension plan that meets the applicable requirements of section 19.01 of Revenue Ruling 69-4. X subsequently acquired all of the stock of Company Y, and Y continued as a subsidiary of X. Effective August 1, 1968, a pension plan with employer-provided benefits identical to those of X's plan was adopted for the subsidiary. The plan for the subsidiary satisfied the requirements of Revenue Ruling 62-139 so that all employees of Y qualified for and received credit, for pension purposes, for all service with Y prior to its becoming a subsidiary of X.

Since the benefits for the employees of the subsidiary are identical to those that would be provided if the employees of the subsidiary instead participated in the pension plan of X, it is held that the provisions of section 19.01 of Revenue Ruling 69-4 are applicable in this situation, so that any date no later than December 31, 1971, may be specified as the date the subsidiary's plan will conform to the applicable provisions of section 20.01 or 20.02 of that Revenue Ruling.

On the other hand, if the employer-provided benefits for the employees of the subsidiary were not identical to those that are provided in the pension plan of X, the provisions of section 19.01 of Revenue Ruling 69-4 would not be applicable. The separate plan for the employees of the subsidiary would then be integrated only if it satisfied in all respects the applicable requirements of section 1.401-3(e)(2) of the regulations, as amended by T.D. 6982, and of sections 3 through 18 of Revenue Ruling 69-4.

The special minimum benefit provision of section 20.05 of Revenue Ruling 69-4 is applicable only to employees who on July 5, 1968, were entitled to benefits under the plan then in effect. Since the employees of Y in situations 1 and 3 were not on July 5, 1968, entitled to any benefit under X's plan, and since the newly adopted plans in situations 2 and 4 were not in effect on July 5, 1968, it is further held that section 20.05 of Revenue Ruling 69-4 does not apply to the employees of Y in any of the four situations.

Revenue Ruling 69-4 is hereby amplified.