Rev. Rul. 70-149

Section 1. Introduction

.01 It is the purpose of this Revenue Ruling to set forth guides for determining whether a pension, annuity, profit-sharing, or stock bonus plan integrates with benefits (other than supplemental annuities) provided by the Railroad Retirement Act of 1937 as amended through 1968. Because of the length of the Revenue Ruling, a table of contents is provided as follows:

                          Table of Contents

Sec. 2. Definitions

Certain terms used in this Revenue Ruling have the meanings indicated below:

.01 Except when used as part of the term "profit-sharing plan," "plan" means a pension plan as defined in section 1.401-1(b)(1)(i) of the regulations or an annuity plan as defined in section 1.404(a)-3(a) of the regulations and in which benefits are related to service for an employer as defined in part I section 1 of the Railroad Retirement Act as amended.

.02 "Integrated plan" means a plan that is not considered discriminatory by reason of differences in proportionate benefits provided under such plan that favor more highly paid employees because such differences are considered to be offset by retirement annuities (other than any supplemental annuities) attributable to employer contributions under the Railroad Retirement Tax Act.

.03 "Taxable wage base" means, with respect to any year, the maximum amount of compensation that may be considered wages for such year under section 3121(a)(1) of the Internal Revenue Code of 1954.

.04 "Integration level" means the compensation level below which, under a plan's benefit formula, compensation is excluded in the computation of benefits or contributions.

.05 "Excess plan" means a plan under which an employee's benefits are based only on his compensation in excess of the integration level.

.06 "Offset plan" means a plan under which (1) no employee is ineligible to participate because his compensation does not exceed a minimum level, (2) no portion of compensation is excluded in computing benefits, and (3) all the provisions, including the benefit rates, apply uniformly to all covered employees regardless of compensation, except that an employee's benefit otherwise computed under the plan formula is reduced or offset by a stated percentage of such employee's retirement annuity (other than any supplemental annuity) under the Railroad Retirement Act.

Sec. 3. Average Annual Compensation

An excess plan in which benefits or contributions are based on an employee's average annual compensation must provide that an employee's average annual compensation is his annual compensation averaged over a period of at least five consecutive years, under a uniform rule that is used for all employees. If an employee has less than five years of service, the average may be taken over his total period of service. It is not acceptable to define average annual compensation as the average of the five highest (nonconsecutive) years within any period of more than five years, or as the average of the five consecutive years which will produce the highest average for each employee. It is also not acceptable to define average annual compensation as the annual compensation during any one year, even though such year precedes normal retirement date by more than five years, unless such compensation is limited to that averaged over a definite period of at least five consecutive years.

Sec. 4. Generally Applicable Conditions

A plan (other than a profit-sharing, stock bonus, or money-purchase plan) is integrated only if:

.01 there are no benefits payable in case of death before retirement (if there are benefits so payable they must be appropriately adjusted in accordance with section 8);

.02 the form of retirement benefit is a straight life annuity (if there are other forms, the benefit payments must be adjusted so that the total value of such other forms is the same as the value of the maximum allowable straight life annuity (see section 9)); and

.03 normal retirement age is not lower than age 65 for men and not lower than age 60 for women (if benefits of any kind other than disability are payable in case of retirement or severance of employment before normal retirement age such benefits must be appropriately adjusted in accordance with section 10 or 11, or if disability benefits are payable they must be appropriately adjusted in accordance with section 7).

Sec. 5. Unit-Benefit Excess Plans

.01 Integration level. For the purposes of sections 5.02, 5.03, and 5.04, the integration level of a unit-benefit excess plan must be, for any year of service, the taxable wage base for that year (except that $4,800 may be used for years prior to 1960), or a lesser stated dollar amount.

.02 Plans basing benefits on actual compensation. A unit-benefit excess plan under which an employee's retirement benefit is based on his actual compensation in excess of the plan's integration level is integrated if the rate at which the normal retirement benefit is provided does not exceed 2%.

.03 Plans basing benefits on annual compensation averaged over a definite period of at least 10 consecutive years. A unit-benefit excess plan under which an employee's retirement benefit is based on his annual compensation in excess of the applicable integration level averaged over a definite period of at least 10 consecutive years is integrated if the rate at which the normal retirement benefit is provided does not exceed 13/4%.

.04 Plans basing benefits on annual compensation averaged over a definite period of at least 5 (but less than 10) consecutive years. A unit-benefit excess plan under which an employee's retirement benefit is based on his annual compensation in excess of the applicable integration level averaged over a definite period of at least 5 (but less than 10) consecutive years is integrated if the rate at which the normal retirement benefit is provided does not exceed 11/2%.

.05 Plans with other integration levels. The integration level of a unit-benefit excess plan for any year of service may be a stated dollar amount that exceeds the maximum allowable integration level under section 5.01, in which case such plan is integrated if the rate in section 5.02, 5.03, or 5.04 (whichever is applicable), is multiplied by a fraction, the numerator of which is the maximum allowable integration level under section 5.01, and the denominator of which is such stated dollar amount.

Sec. 6. Offset Plans

An offset plan is integrated if the offset to any employee's benefit does not exceed 7/8 of the retirement annuity (other than any supplemental annuity) for which the employee is immediately eligible under the Railroad Retirement Act as in effect in 1968 or as in effect at the time at which the offset is first applied.

Sec. 7. Benefits in Case of Disability Before Normal Retirement Age

If an excess plan satisfies the requirements of section 4 except that, in case of retirement or severance of employment due to disability before age 65 for men or age 60 for women, it provides a benefit equal to the employee's accrued benefit, such plan is integrated only if the eligibility conditions necessary for payment of such disability benefits under the plan are substantially equivalent to the conditions necessary for payment of such benefits under the Railroad Retirement Act and if the rate at which the normal retirement benefit is provided does not exceed 90% of the limitation that would be applicable if the plan did not provide such disability benefits. Similarly, an offset plan that provides such disability benefits is integrated if the offset to any employee's benefits does not exceed 90% of the limitation that would be applicable if the plan did not provide such disability benefits.

Sec. 8. Benefits in Case of Death Before Retirement

.01 Reserve or total prior contributions. If a plan satisfies the requirements of section 4 except that it provides benefits in case of death before retirement not exceeding the greater of the reserve or the total prior contributions on a typical individual level annual premium funding method, and provides no other death benefits or life insurance the current cost of which is not includible in the gross income of the employee, such plan is integrated if the rate of benefits or the offset to the benefits does not exceed 8/9 of the limitation that would be applicable if the plan did not provide such death benefits. .02 Spouse's benefit of one-half of employee's accrued benefit. If a plan satisfies the requirements of section 4 except that, in case of death before retirement, it provides a benefit to the employee's spouse of a straight life annuity in an amount equal to one-half of the employee's accrued benefit (without regard to the age or sex of the employee's spouse), such plan is integrated if the rate of benefits or the offset to the benefits does not exceed 7/8 of the limitation that would be applicable if the plan did not provide such benefits.

.03 Alternative rule. If a plan satisfies the requirements of section 4 except that it provides benefits in case of death before retirement, the plan is integrated if the rate of benefits or the offset to the benefits does not exceed the limitation that would be applicable if the plan did not provide such death benefits, reduced to take account of the actuarial value of such benefits (computed solely on the basis of reasonable interest and mortality) in the case where such benefits are most valuable in relation to the retirement benefit.

Sec. 9. Retirement Benefit Forms Other Than a Straight Life Annuity

If a plan satisfies the requirements of section 4 except that benefits are or may be provided in a form other than a straight life annuity, such plan is integrated only if the total value of such form does not exceed the value of the maximum allowable straight life annuity that may be provided under the plan. In the case of the benefit forms described in this section, this requirement is deemed to be satisfied if the rate of benefits or the offset to the benefits does not exceed the limitation that would be applicable if the form of retirement benefit were a straight life annuity, multiplied by a percentage that corresponds to the form of retirement benefit under the plan as follows:

 Form of Retirement Benefit:                               Percentage

An excess plan that satisfies the requirements of section 4 except that it provides benefits (other than disability benefits referred to in section 7) that are attributable to employer contributions in case of retirement or severance of employment before age 65 for men or age 60 for women is integrated only if such benefits do not exceed the maximum allowable benefits, adjusted in accordance with this section. This section is applicable to plans having a stated retirement age lower than age 65 for men or age 60 for women and to plans permitting such early retirement on an optional basis.

.01 Deferred annuity beginning at age 65 for men or age 60 for women. No adjustment is required to the limitation of section 5.02, 5.03, 5.04, or 5.05 (whichever is applicable) on the benefits provided under a unit-benefit excess plan.

.02 Benefits payable before age 65 for men or age 60 for women. The benefits cannot exceed the actuarial value determined at the time of early retirement or severance of the maximum benefits that could be provided in accordance with section 10.01. This requirement will be deemed to be satisfied if the benefits on early retirement do not exceed the benefits computed solely on the basis of one of the following:

1 The maximum benefit, determined in accordance with section 10.01, reduced by 1/15 for each of the first five years and 1/30 for each of the next five years by which the starting date of the annuity precedes age 65 for men or age 60 for women, and reduced actuarially for each additional year thereafter.

2 In the case of a plan funded solely by typical individual level premium annuity or insurance contracts, the benefits provided by the reserve.

Sec. 11. Early Retirement Under Offset Plans

An offset plan that satisfies the requirements of section 4 except that it provides benefits in case of retirement or severance of employment before age 65 for men or age 60 for women that are not on account of disability as provided in section 7, is integrated:

.01 Where the benefits are paid in the form of a deferred annuity commencing at age 65 for men or age 60 for women, or where such benefits are not reduced by any offset until such age, if the amount of the offset to such benefits is determined by applying the maximum allowable offset rate to the retirement annuity (other than any supplemental annuity) under the Railroad Retirement Act to which the employee would be entitled at such age based upon the assumption that he will not receive after retirement or severance any income that would be treated as wages for purposes of the Railroad Retirement Act.

.02 Where the benefits are paid in any form other than a deferred annuity commencing at age 65 for men or age 60 for women, if the offset does not exceed the actuarial equivalent (which may be determined in accordance with section 10.02) at the time of retirement or severance of the maximum offset determined in accordance with section 11.01.

Sec. 12. Employee Contributions

A contributory excess plan is integrated notwithstanding the fact that the rate of benefits for each employee is greater than the maximum rate that would otherwise be applicable, if the difference between such rates is properly attributable to amounts contributed by the employee. For purposes of this section, amounts contributed by an employee that are applicable to the current cost of insurance or death benefits in excess of the reserve or cash value of a life insurance contract may not be taken into account.

.01 Unit-benefit excess plans basing benefits on actual compensation. In the case of a plan described in section 5.02, the maximum benefit rate for any year in which the employee contributes may be increased by the rate of employee contributions, multiplied by one-eighth, or if the rate at which interest is actually credited to employee contributions equals at least 41/2%, by one-sixth.

.02 Unit-benefit excess plans basing benefits on annual compensation averaged over a definite period of at least 10 consecutive years. In the case of a plan described in section 5.03, the maximum benefit rate for any year in which the employee contributes may be increased by the rate of employee contributions, multiplied by one-tenth, or if the rate at which interest is actually credited to employee contributions equals at least 41/2%, by two-fifteenths.

.03 Unit-benefit excess plans basing benefits on annual compensation averaged over a definite period of at least 5 (but less than 10) consecutive years. In the case of a plan described in section 5.04, the maximum benefit rate for any year in which the employee contributes may be increased by the rate of employee contributions, multiplied by one-twelfth, or if the rate at which interest is actually credited to employee contributions equals at least 41/2%, by one-ninth.

.04 Payment of benefits before age 65 for men or age 60 for women. The amount by which benefit rates may be increased under the preceding portions of this section is applicable only where payment of benefits commences at age 65 for men or age 60 for women. If the starting date of the annuity precedes age 65 for men or age 60 for women, the amount of any such increase may not exceed the actuarial equivalent (which may be determined in accordance with section 10.021) at such starting date of the amount determined in accordance with the preceding portions of this section.

.05 Crediting of interest. For purposes of this section, the rate at which interest is actually credited to employee contributions is the lowest rate at which interest (if any) is, under the terms of the plan, payable in the event of refund of employee contributions for any reason.

Sec. 13. Money-Purchase Plans

.01 A money-purchase excess plan under which employer contributions are based on compensation in excess of an integration level meeting the requirements of section 5.01 or 5.05 is integrated if:

1 With respect to any service, the rate of employer contributions with respect to actual compensation does not exceed six times the rate specified in section 5.02 (or, if applicable, section 5.05), or

2 With respect to service prior to the inception of the plan, the rate of employer contributions with respect to average annual compensation does not exceed six times the rate specified in section 5.03 (or, if applicable, section 5.04 or 5.05) for each year of service prior to the inception of the plan.

.02 Alternatively, the benefits for service prior to the inception of the plan may be provided in accordance with section 5.

Sec. 14. Profit-sharing and Stock Bonus Plans

A profit-sharing or stock bonus plan is integrated only if:

.01 The plan's integration level meets the requirements of section 5.01 or 5.05;

.02 The rate at which employer contributions and forfeitures are allocated to any participant in any year with respect to his actual compensation for such year in excess of the plan's integration level for such year does not exceed six times the rate specified in section 5.02 (or, if applicable, section 5.05), except that a minimum allocation not exceeding $48 may be provided for each participant in any year that allocations are made;

.03 The plan provides benefits only upon retirement, death, or other separation from service; and

.04 All contributions are allocated on a nondiscriminatory basis when made.

Sec. 15. Step-Rate Excess Plans

.01 If benefits are provided (or employer contributions are made) with respect to all compensation below the integration level, the applicable limitation on the rate of benefits (or employer contributions) with respect to compensation in excess of such integration level may be increased by the rate of benefits (or employer contributions) with respect to compensation below such integration level (hereinafter referred to as "the uniform rate"). No such increase is allowable unless the benefits (or employer contributions) with respect to compensation below such integration level are no less favorable in any respect (including, but not limited to, retirement age, death benefits, form of annuity, eligibility requirements, or rate of vesting) than the benefits (or employer contributions) with respect to compensation in excess of such integration level, except where any differences can be actuarially adjusted in accordance with the applicable provisions of this Revenue Ruling. For purposes of this Revenue Ruling, if such an increase is allowable, the plan (or plans) under which all such benefits are provided (or employer contributions are made) is deemed to consist of two plans as follows:

1 A plan under which benefits are provided (or employer contributions are made) with respect to all compensation at the uniform rate, and

2 A plan under which benefits are provided (or employer contributions are made) with respect to compensation in excess of the plan's integration level at a rate equal to the difference between the rate of benefits (or employer contributions) with respect to compensation in excess of the plan's integration level and the uniform rate.

.02 Only the plan described in section 15.012 is subject to the requirements of this Revenue Ruling.

Sec. 16. Multiple Integrated Plans

If an employer has more than one plan involving integration, and if any employee is or may be eligible to participate in more than one of such plans, such plans will be considered to be one plan and will be considered to be integrated if the extent of integration of all such plans does not exceed 100%. For purposes of the preceding sentence, the extent of integration of a plan is the ratio (expressed as a percentage) that the actual benefits, benefit rate, offset rate, or employer contribution rate under the plan bears to the limitation applicable to such plan.

Sec. 17. Variable Benefits

The fact that all or a portion of the benefits provided under a plan (other than a plan satisfying the requirements of section 13 or 14) varies with the earnings of a specific fund or with the fluctuations of a specified and generally recognized cost-of-living index will not, in and of itself, prevent such plan from being integrated. The fact that earnings in excess of those assumed in determining employer contributions under a plan (other than a plan satisfying the requirements of section 13 or 14) are applied to increase all or a portion of the benefits provided under such plan and not to reduce future employer contributions will not, in and of itself, prevent such plan from being integrated. A plan containing provisions of the type described in this paragraph is integrated if, at the time of retirement or severance of employment, the value of the benefits provided for any employee under such plan does not exceed the value of the maximum benefits that may be provided for him under an integrated plan of the same type. This requirement will be deemed to be satisfied by a plan that satisfies the principles of Revenue Ruling 60-337, C.B. 1960-2, 151, or section 17.01 or 17.02 of this Revenue Ruling.

.01 Variable annuity plans. In the case of a unit-benefit excess plan that satisfies the requirements of section 5.02 (or, if applicable, section 5.05), where earnings in excess of those assumed in determining employer contributions with respect to all or a portion of the benefits provided under such plan are allocated in proportion to such benefits, such plan is integrated if the assumed interest rate is not less than 51/2%. If the assumed interest rate is less than 51/2%, such plan is integrated only if the limitation is reduced by 1/15 for each 1/2 percentage point (or fractional part thereof) by which 51/2% exceeds such interest rate.

.02 Cost-of-living plans. In the case of a unit-benefit excess plan which satisfies the requirements of section 5.02 (or, if applicable, section 5.05), such plan is integrated even though all or a portion of the benefits varies with the fluctuations of a specified and generally recognized cost-of-living index.

Sec. 18. Minimum Benefits or Contributions and Rounding of Benefits

A plan is integrated notwithstanding the fact that it provides a minimum benefit attributable to employer contributions that does not exceed $240 a year, or $8 a year for each year of service, or that minimum employer contributions of $48 a year are made with respect to any employee. Any minimum benefit or employer contribution described in the preceding sentence may not be used as a tolerance and may not be taken into account in determining whether larger benefits or contributions satisfy the applicable requirements of this Revenue Ruling. The limitations of this section upon minimum benefits or contributions do not apply where (1) there is no minimum compensation requirement for minimum benefits or contributions, and (2) the formula for determining minimum benefits or contributions does not involve integration with benefits provided by the Railroad Retirement Act. A plan is integrated notwithstanding the fact that the total monthly benefits for each employee are, under a uniformly applicable rule, increased to the next higher multiple of $10 a month, decreased to the next lower multiple of $10 a month, or rounded to the nearest multiple of $10 a month.

Sec. 19. Applicability of Other Rulings

.01 The principles of paragraph 16 of Revenue Ruling 61-147, C.B. 1961-2, 102, are hereby extended. A plan will be considered to be integrated without regard to whether it satisfies the applicable requirements of sections 3 through 18 of this Revenue Ruling if it satisfies in all respects the applicable requirements of any one of the following:

1 Revenue Ruling 12, C.B. 1953-1, 290;

2 Revenue Ruling 12 as modified by paragraph 16 of Revenue Ruling 61-147;

3 Revenue Ruling 61-147;

4 Revenue Ruling 67-261, C.B. 1967-2, 148.

.02 A plan will also be considered to be integrated if that portion of the benefits attributable to service prior to any specified date conforms to the requirements of section 19.01 of this Revenue Ruling, and that portion of the benefits attributable to service after the specified date conforms to the applicable requirements of sections 3 through 18 of this Revenue Ruling.