Rev. Rul. 70-384

Advice has been requested whether the classification described below is discriminatory under section 401(a)(3)(B) of the Internal Revenue Code of 1954.

A corporation established a profit-sharing plan for the benefit of its "supervisors." The employer has 41 employees, ten of whom are designated by the employer as "supervisors" and covered by the plan.

None of the participants are shareholders or officers and none are highly compensated in comparison to employees who are not participants. One participant is authorized to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, and discipline employees, and direct them in their work. Two other participants are required to direct employees in their work and are responsible for assuring that the employees work as directed; however, they are also required to do other work such as planning, report writing, attending conferences, inspection, and even production work when they have the time. Approximately 75 percent of their time is spent in the latter work. These employees cannot hire, transfer, etc., other employees, but they can effectively recommend such action.

Four additional participants work principally as estimators but also have the duty of substituting for any of the three previously mentioned employees who may be absent due to illness, vacation, and the like. While performing the latter duties they direct employees in their work but cannot hire, transfer, etc., other employees or effectively recommend such action.

The other three participants "supervise" the quality of the product produced but do not direct other employees in their work and cannot hire, transfer, etc., other employees or effectively recommend such action.

Section 401(a)(3)(B) of the Code provides that a plan may qualify if it covers such employees as qualify under a classification set up by the employer which does not discriminate in favor of employees whose principal duties consist in supervising the work of other employees.

Whether an employee's principal duties consist of supervising the work of other employees is determined by his duties and not by his job title. In this case, the first three "supervisors" are in the group in whose favor discrimination is prohibited under section 401(a)(3)(B) of the Code since their principal duties consist in supervising the work of other employees. None of the other "supervisors" are in this group since their principal duties do not consist in supervising the work of other employees.

Accordingly, it is held that the classification under the plan is not discriminatory under section 401(a)(3)(B) of the Code.