Rev. Rul. 70-75

Advice has been requested whether an employees' pension plan that provides different eligibility requirements for present and future employees may meet the requirements of section 401(a)(3)(B) of the Internal Revenue Code of 1954.

A corporation established a pension plan that provided for the immediate participation of all its salaried employees. However, participation of salaried employees hired after the plan was established was limited to those who were over 30 years of age and had five or more years of service. At the time the plan was established, all employees who were officers, shareholders or highly compensated were over 30 years of age and had at least five years of service.

Coverage under the plan did not meet the percentage requirements of section 401(a)(3)(A) of the Code but the classification was not discriminatory within the meaning of section 401(a)(3)(B) in favor of employees who were officers, shareholders, supervisors, or highly compensated.

A plan that does not meet the percentage tests of section 401(a)(3)(A) of the Code may still meet the coverage requirements under section 401(a)(3)(B) if the classification of employees actually covered does not discriminate in favor of employees who are officers, shareholders, supervisors, or highly compensated.

A provision for different eligibility requirements for present and future employees is not, of itself, discriminatory within the purview of section 401(a)(3)(B) of the Code. However, where employees who are officers, shareholders, supervisors or highly compensated cannot meet the eligibility requirements for new employees at the time the plan is established, the prohibited discrimination is likely to arise in operation when new employees are added to the employer's work force.

It is held that the eligibility provision did not cause the plan in this case to fail to meet the requirements of section 401(a)(3)(B) of the Code, since at the time the plan was established, all employees who were officers, shareholders, supervisors, or highly compensated met the requirements for new employees.