Rev. Rul. 69-296

Advice has been requested whether a money purchase pension plan that determines contributions on the basis described below fails to qualify under section 401(a) of the Internal Revenue Code of 1954.

An organization exempt from Federal income tax under section 501(c)(3) of the Code established a money purchase pension plan for its employees. Under the provisions of the plan the term "compensation" of an employee is defined to include all current compensation paid to the employee plus any amounts paid by the employer toward the purchase of nonforfeitable annuities under an arrangement referred to in section 403(b) of the Code. The pension plan otherwise meets the requirements of section 401(a) of the Code.

Section 401(a)(4) of the Code provides that the contributions or benefits under a qualified plan must not discriminate in favor of employees who are officers, shareholders, supervisors, or highly compensated. Section 401(a)(5) of the Code further provides that a plan shall not be considered discriminatory merely because the contributions or benefits, of or on behalf of the employee-participants, bear a uniform relationship to the total compensation, or the basic or regular rate of compensation of the employees. The nonforfeitable contributions made by the employer under the annuity purchase arrangement in this case are compensation, although not received immediately by the employees. The fact that these contributions are not immediately taxable to the employees, because of the provisions of section 403(b) of the Code, does not change their character as compensation. Thus, the contributions to the qualified plan, which are based on current compensation plus amounts deferred under the annuity purchase arrangement, are based on total compensation.

Based on the foregoing, it is held that the money purchase pension plan in this case does not fail to qualify under section 401(a) of the Code merely because of the basis used in determining contributions.