Rev. Rul. 70-42

Advice has been requested concerning the determination of the "integration level," in the situation described below, for purposes of section 5.011 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.

A flat-benefit excess plan established April 1, 1969, covers all employees who were hired prior to age 50. The plan meets the requirements of section 4 of Revenue Ruling 69-4 and provides normal annual retirement benefits commencing at age 65 or upon the completion of 10 years of participation in the plan, whichever occurs later, equal to 30 percent of average annual compensation in excess of a stated dollar amount. Three employees will attain age 65 prior to March 31, 1979, the earliest date when any employee can have ten years of participation in the plan. These employees were born in 1905, 1910, and 1912. The question is how to determine the integration level under section 5.011 of Revenue Ruling 69-4 where, for such employees, normal retirement age is greater than age 65.

Section 5.011 of Revenue Ruling 69-4 states that in a flat-benefit excess plan the "integration level" is, for an active participant, either his "covered compensation" or a stated dollar amount uniformally applicable to all active participants which does not exceed the covered compensation of any individual who is or may become a participant. "Covered compensation" is defined, in section 2.03 of Revenue Ruling 69-4 as the amount of compensation used to compute an individual's old-age and survivors insurance Social Security benefits if, for each year until he reaches 65, his annual compensation is at least equal to the maximum amount of earnings which may be considered wages for such year under section 3121(a) of the Internal Revenue Code. Tables I and II in section 3.02 of Revenue Ruling 69-4 indicate amounts which may be used as "covered compensation" for the purposes of that Revenue Ruling.

Under the Social Security Act as amended by the Social Security Amendments of 1967, if an employee who was born before 1941 continues to receive compensation after the calendar year in which he attains age 64 and if such compensation is at least equal to the maximum amount of earnings which may be considered wages for each such year under section 3121(a) of the Internal Revenue Code, the amount of compensation used to determine his old-age and survivors insurance benefits will be greater than the amount of compensation used to determine such benefits had his employment ceased at age 65. The exact amount of this increase depends upon the employee's year of birth and the number of years that the employee works beyond the year in which he attains age 64. Similarly, if an employee who was born in 1941 or later continues to receive compensation after the calendar year in which he attains age 64 and if such compensation is at least equal to the maximum amount of earnings which may be considered wages for each such year under section 3121(a) of the Internal Revenue Code, the amount of compensation used to determine his old-age and survivors insurance benefits will be equal to the amount of compensation used to determine such benefits had his employment ceased at age 65.

Thus, for example, the maximum compensation that could be used to compute Social Security benefits in the case of an employee who works one year beyond the year in which he attains age 64, would not be less than the covered compensation of an employee who at that time is one year younger. Similarly, in the case of an employee who works five years beyond the year in which he attains age 64, such maximum compensation would not be less than the covered compensation of an employee who at that time is five years younger.

Accordingly, in order that the "integration level" for an employee whose normal retirement age is greater than age 65 may be consistent with the "covered compensation" actually used to determine his benefits under the Social Security Act, the applicable integration level referred to in section 5.011 of Revenue Ruling 69-4 may be determined from Table I or Table II, section 3.02 of Revenue Ruling 69-4, by using an assumed year of birth determined by subtracting 65 from the year in which the employee reaches normal retirement age.

In the situation described above, therefore, since the normal retirement age of all three employees who attain age 65 prior to March 31, 1979, is reached in 1979, the covered compensation and applicable integration level for these employees may be determined from Table I or Table II, section 3.02 of Revenue Ruling 69-4, by using 1914 (1979 less 65) as the assumed year of birth of each.

Similar principles will apply in determining the integration level for purposes of section 5.011 of Revenue Ruling 69-4 in the case of employees who are over age 65 at the date the plan is established.

Revenue Ruling 69-4 is hereby amplified.