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Rev. Rul. 71-446


Rev. Rul. 71-446; 1971-2 C.B. 187

DATED
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  • Cross-Reference

    26 CFR 1.401-3: Requirements as to coverage.

  • Code Sections
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    English
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Citations: Rev. Rul. 71-446; 1971-2 C.B. 187
Rev. Rul. 71-446

The Internal Revenue Service has formulated the following guides for determining whether a pension, annuity, profit-sharing, or stock bonus plan integrates with benefits provided by the Social Security Act as amended through June 30, 1971.

                          TABLE OF CONTENTS

 

 

 Sec.  1. Introduction.

 

 

       2. Definitions.

 

          .01 Plan

 

          .02 Integrated plan

 

          .03 Covered compensation

 

          .04 Taxable wage base

 

          .05 Integration level

 

          .06 Excess plan

 

          .07 Offset plan

 

          .08 Normal retirement age

 

          .09 Normal retirement benefits

 

 

       3. Plan definitions.

 

          .01 Average annual compensation

 

          .02 Covered compensation

 

          .03 Compensation

 

 

       4. Generally applicable conditions.

 

 

       5. Flat-benefit excess plans.

 

 

       6. Unit-benefit excess plans.

 

          .01 Integration level

 

          .02 Plans basing benefits on actual compensation

 

          .03 Plans basing benefits on average annual compensation

 

          .04 Plans with other integration levels

 

          .05 Applicability of section 5

 

 

       7. Offset plans.

 

 

       8. Benefits in case of death before retirement.

 

          .01 Lump-sum benefits

 

          .02 Spouse's annuity benefits

 

          .03 Alternative rule

 

 

       9. Retirement forms other than a straight life annuity.

 

 

      10. Early retirement under excess plans.

 

          .01 Deferred annuity beginning no earlier than age 65

 

          .02 Benefits payable before age 65

 

 

      11. Early retirement under offset plans.

 

          .01 Deferred annuity beginning at age 65

 

          .02 Benefits payable before age 65

 

 

      12. Benefits in case of disability before age 65.

 

          .01 Excess plans

 

          .02 Offset plans

 

          .03 Plans not requiring social security disability benefits

 

              receipt

 

 

      13. Employee contributions.

 

          .01 Unit-benefit excess plans basing benefits on actual

 

              compensation

 

          .02 Unit-benefit excess plans basing benefits on average

 

              annual compensation

 

          .03 Other excess plans

 

          .04 Payment of benefits before age 65

 

 

      14. Money-purchase plans.

 

 

      15. Profit-sharing and stock bonus plans.

 

 

      16. Step-rate excess plans.

 

 

      17. Multiple integrated plans.

 

 

      18. Variable benefits.

 

          .01 Variable annuity plans

 

          .02 Cost-of-living plans

 

 

      19. Plans with two integration levels.

 

          .01 Basic Limitation

 

          .02 Alternative Limitation

 

 

      20. Minimum benefits or contributions, rounding of benefits, and

 

          salary or wage brackets.

 

 

      21. Applicability.

 

 

      22. Transitional rules for certain plans.

 

          .01 Excess plans

 

          .02 Offset plans

 

          .03 Service with the employer

 

          .04 Benefit and offset rate

 

          .05 Special minimum benefit

 

          .06 Effect of transitional rules

 

 

Section 1. Introduction.

Section 1.401-3(e) of the Income Tax Regulations, as amended by T.D. 7134, page 200, establishes the general basis for the integration of pension, annuity, profit-sharing and stock bonus plans with old-age, survivors, and disability insurance benefits provided under the Social Security Act. This Revenue Ruling provides additional rules for the integration of such plans with such benefits. See section 1.401-(e)(2)(v) of the regulations.

Sec. 2. Definitions.

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

.01 "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 except when used as part of the term "profit-sharing plan" or "stock bonus plan."

.02 "Integrated plan" means a plan which is not considered discriminatory by reason of differences in proportionate benefits provided under such plan which favor more highly paid employees because such differences are considered to be offset by old-age, survivors, and disability insurance benefits attributable to employer contributions under the Federal Insurance Contributions Act.

.03 "Covered compensation" means, with respect to an employee, the amount of compensation with respect to which old-age and survivors insurance benefits would be provided for him under the Social Security Act if for each year until he reaches age 65 his annual compensation is at least equal to the taxable wage base (as defined in section 2.04).

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

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

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

.07 "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 old-age insurance benefit under the Social Security Act.

.08 "Normal retirement age" is the lowest age specified in a plan at which the employee has the right to retire without the consent of the employer and receive retirement benefits based on service to date of retirement at the full rate for such service set forth in the plan (i.e., without actuarial or similar reduction because of retirement before some later specified age).

.09 "Normal retirement benefits" are the benefits payable under a plan after retirement at any age no earlier than normal retirement age.

Sec. 3. Plan Definitions.

.01 Average annual compensation. An excess plan 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 which is used for all employees. For this purpose it is acceptable to use for each employee the period of five consecutive years which will produce the highest average for him. If an employee has less than five years of service, the average may be taken over his total period of service. However, 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 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 the five consecutive years which will produce the highest average for each employee.

.02 Covered compensation. As defined in section 2.03, an employee's covered compensation is the amount of compensation with respect to which old-age and survivors insurance benefits would be provided for him under the Social Security Act computed as though for each year until he reaches age 65 his annual compensation is at least equal to the taxable wage base (as defined in section 2.04). A plan may provide that an employee's covered compensation shall be determined on the basis of the Social Security Act as in effect at any time (uniformly determined for all employees) not later than the time at which each individual employee's benefits commence. After the enactment of any amendment to the Social Security Act affecting any employee's covered compensation, a plan may be amended to provide that the covered compensation of each employee whose benefits have not yet commenced shall be determined on the basis of the Social Security Act as so amended. For the purpose of determining the amount of an employee's covered compensation, a plan may provide for the uniform rounding of exact amounts to the nearest whole multiple of a stated dollar amount not greater than $600. Under the Social Security Act as amended by the Social Security Amendments of March 1971, P.L. 92-5, C.B. 1971-1, 553, the uniform rounding to $600 multiples referred to in the preceding sentences is set forth in Table I, and the exact amounts referred to in the preceding sentence are set forth in Table II.

                               TABLE I

 

 

 Calendar year of 65th birthday:                            Amount

 

 

      1971 _________________________________________________ $5,400

 

      1972 to 1975 _________________________________________  6,000

 

      1976 to 1981 _________________________________________  6,600

 

      1982 to 1991 _________________________________________  7,200

 

      1992 to 1998 _________________________________________  7,800

 

      1999 to 2003 _________________________________________  8,400

 

      2004 or later_________________________________________  9,000

 

 

                              TABLE II

 

 

 Calendar year of 65th birthday:                            Amount

 

 

      1971 _________________________________________________ $5,520

 

      1972 _________________________________________________  5,652

 

      1973 _________________________________________________  5,856

 

      1974 _________________________________________________  6,024

 

      1975 _________________________________________________  6,180

 

      1976 _________________________________________________  6,324

 

      1977 _________________________________________________  6,456

 

      1978 _________________________________________________  6,564

 

      1979 _________________________________________________  6,672

 

      1980 _________________________________________________  6,768

 

      1981 _________________________________________________  6,864

 

      1982 _________________________________________________  6,936

 

      1983 _________________________________________________  7,020

 

      1984 _________________________________________________  7,092

 

      1985 _________________________________________________  7,152

 

      1986 _________________________________________________  7,212

 

      1987 _________________________________________________  7,272

 

      1988 _________________________________________________  7,320

 

      1989 _________________________________________________  7,380

 

      1990 _________________________________________________  7,428

 

      1991 _________________________________________________  7,464

 

      1992 _________________________________________________  7,512

 

      1993 _________________________________________________  7,548

 

      1994 _________________________________________________  7,584

 

      1995 _________________________________________________  7,716

 

      1996 _________________________________________________  7,836

 

      1997 _________________________________________________  7,968

 

      1998 _________________________________________________  8,076

 

      1999 _________________________________________________  8,184

 

      2000 _________________________________________________  8,304

 

      2001 _________________________________________________  8,412

 

      2002 _________________________________________________  8,520

 

      2003 _________________________________________________  8,628

 

      2004 _________________________________________________  8,736

 

      2005 _________________________________________________  8,808

 

      2006 _________________________________________________  8,868

 

      2007 _________________________________________________  8,904

 

      2008 _________________________________________________  8,928

 

      2009 _________________________________________________  8,964

 

      2010 or later ________________________________________  9,000

 

 

Where normal retirement benefits under a plan for an employee are due to commence beyond the calendar year of an employee's 65th birthday, the calendar year in which normal retirement benefits are due to commence for that employee may be used as the assumed calendar year of 65th birthday for the purpose of Table I or II above. Similarly, if an employee is over age 65 at the date the plan is established, the "calendar year of 65th birthday" used for the purpose of Table I or Table II above need be no earlier than the calendar year containing the date as of which the plan is established.

.03 "Compensation" means either (1) the amount of compensation that would be subject to tax under section 3101(a) of the Internal Revenue Code of 1954 without the dollar limitation of section 3121(a)(1) of the Code or (2) the amount of compensation determined according to a restrictive definition such as compensation inclusive or exclusive of bonuses, commissions or overtime pay, or as basic compensation, or as regular rate of compensation provided that whatever definition is used cannot result in the discrimination prohibited by section 1.401-4(a)(1)(i) of the regulations.

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 unless, if there are benefits so payable, the otherwise applicable limit must be appropriately adjusted in accordance with section 8.

.02 The form of retirement benefit is a straight life annuity unless, 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.)

.03 Normal retirement age is not lower than age 65 unless, if benefits of any kind other than disability are payable in case of retirement or severance of employment before age 65, such benefits must be appropriately adjusted in accordance with section 10 or 11, and, if disability benefits are payable, the otherwise applicable limit must be appropriately adjusted in accordance with section 12.

Sec. 5. Flat-Benefit Excess Plans.

A flat-benefit excess plan is integrated if:

.01 The plan's integration level applicable to an employee is:

1. In the case of an active participant, his covered compensation, or a stated dollar amount uniformly applicable to all active participants which does not exceed the covered compensation of any individual who is or may become a participant.

2. In the case of a retired participant, an amount which does not exceed his covered compensation.

.02 The normal annual retirement benefit for any employee cannot exceed the following percentage of his average annual compensation in excess of the applicable integration level:

1. 371/2%, in the case of an employee with 15 or more years of service with the employer at normal retirement age, and

2. 21/2% for each year of service with the employer, in the case of an employee with less than 15 years of service with the employer at normal retirement age, but not to exceed 371/2%. However, if the integration level of a flat-benefit excess plan is:

.03 In the case of an active participant, a stated dollar amount uniformly applicable to all active participants which exceeds the covered compensation of any individual who is or may become a participant,

.04 In the case of a retired participant, an amount which exceeds his covered compensation, such plan is integrated if the percentages in section 5.02 are multiplied by a fraction, the numerator of which is, in the case of an active participant, the covered compensation of the oldest individual who is or may become a participant and, in the case of a retired participant, his covered compensation, and the denominator of which is the plan's integration level applicable to the participant.

Example. A flat-benefit excess plan in which the integration level is $9,000 a year meets the requirements of section 4 and provides normal annual retirement benefits upon retirement at age 65 with at least 15 years of service equal to 30% of average annual compensation in excess of $9,000. The plan is established effective July 1, 1971, and covers all employees who were hired prior to age 50. The oldest present employee is age 40.

Since it is possible that an employee reaching age 65 in 1986 (age 50 in 1971) could be hired and covered by the plan, the minimum covered compensation from Table I in section 3.02 of any present or potential participant in the plan is $7,200. Such plan is integrated because the rate of benefits does not exceed 30% (i.e., 371/2% X 7,200/9,000).

Note.--Use of Table II would produce an even higher limitation.

Sec. 6. Unit-Benefit Excess Plans.

.01 Integration level. The integration level of a unit-benefit excess plan must be either:

1. For all years of service, an amount meeting the requirements of section 5.01, or

2. For any year of service, the taxable wage base for that year (except that $4,800 may be used for years prior to January 1, 1959), or a lesser stated dollar amount, or

3. For all years of service prior to a specified date (that is no later than the end of the year in which the plan or amendment to the plan so providing is effective), the covered compensation of an employee who reaches age 65 in such year (or a lesser stated dollar amount), and for any subsequent year of service, the amount specified in section 6.012.

.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 1.4%.

.03 Plans basing benefits on average annual compensation. A unit-benefit excess plan under which an employee's retirement benefit is based on his average annual compensation in excess of the applicable integration level is integrated if the rate at which the normal retirement benefit is provided does not exceed 1%.

.04 Plans with other integration levels. If the integration level of a unit-benefit excess plan for any year of service is a stated dollar amount which exceeds the maximum allowable integration level under section 6.01, such plan is integrated if the rate in section 6.02 or 6.03 (whichever is applicable), is multiplied by a fraction, the numerator of which is the maximum allowable integration level, and the denominator of which is such stated dollar amount.

.05 Applicability of section 5. If a unit-benefit excess plan does not meet the applicable requirements of this section, it is integrated only if it meets the applicable requirements of section 5.

Example. A unit-benefit excess plan which meets the requirements of section 4 provides normal annual retirement benefits equal to 1% of average annual compensation in excess of $5,000 multiplied by the number of years of service at retirement date. The plan is established effective July 1, 1971, and covers only employees who have not attained age 65.

In accordance with Table I in section 3.02, the covered compensation of any employee covered by the plan is at least $5,400. Such plan is integrated under section 6.03 because the rate of benefits does not exceed 1% and the integration level does not exceed $5,400 (the limitation of section 6.011).

Sec. 7. Offset Plans.

An offset plan is integrated if the rate at which the offset to any employee's benefit is computed does not exceed:

.01 831/3%, if the amount of the offset to an employee's benefit is computed on the basis of the Social Security Act as in effect at the time at which the offset is first applied.

.02 92%, if the amount of the offset to an employee's benefit is computed on the basis of the Social Security Act Amendments of 1969.

.03 105%, if the amount of the offset to an employee's benefit is computed on the basis of the Social Security Act Amendments of 1967, P.L. 90-248, C.B. 1968-1, 648.

.04 117%, if the amount of the offset to an employee's benefit is computed on the basis of the Social Security Act Amendments of 1958, P.L. 85-840, C.B. 1958-3, 85, or 1965, P.L. 89-97, C.B. 1965-2, 601.

However, the dollar amount of the offset to any employee's benefit shall not be increased after the time at which the offset is first applied due to subsequent changes in the Social Security Act.

Sec. 8. Benefits in Case of Death Before Retirement.

.01 Lump-sum benefits. If a plan satisfies the requirements of section 4 except that it provides benefits in case of death before retirement:

1. 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 benefits or the offset to the benefit does not exceed 8/9 of the limitation which would be applicable if the plan did not provide such death benefits.

2. Equal to 100 times the anticipated monthly pension; i.e., the monthly pension the employee would have received at normal retirement age under the plan, if the employee had survived and his compensation (or rate of compensation) had remained unchanged from date of death until date of retirement, and no portion of the current cost of such death benefits is includible in the gross income of the employee, such plan is integrated if the benefits or the offset to the benefits does not exceed 8/10 of the limitation which would be applicable if the plan did not provide such death benefits.

3. Equal to the greater of 100 times the anticipated monthly pension or the reserve on a typical individual level annual premium funding method, and no portion of the current cost of such death benefits is includible in the gross income of the employee, such plan is integrated if the benefits or the offset to the benefits does not exceed 7/9 of the limitation which would be applicable if the plan did not provide such death benefits.

.02 Spouse's annuity benefits. 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 a fraction (k), not exceeding 100%, of the employee's accrued benefit (without regard to the age or sex of the employee's spouse), such plan is integrated if the benefits or the offset to the benefits does not exceed a fraction equal to 7 / (7 + 2k) of the limitation which would be applicable if the plan did not provide such benefits. However, the spouse's benefit must be incidental within the meaning of section 1.401-1(b)(1)(i) of the regulations. See Revenue Ruling 70-611, C.B. 1970-2, 89.

Example 1. A plan provides, in case of death before retirement, 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. The factor to be applied to the otherwise applicable limit in this case is 7 / [7 + 2(1/2)] = 7/8.

Example 2. A plan provides, in case of death before retirement but after the employee's attainment of age 50, a benefit to the employee's spouse of a straight life annuity in an amount equal to the employee's accrued benefit. No other benefits in case of death before retirement are provided by the plan. The death benefits so provided are accordingly incidental as shown by the table contained in Rev. Rul. 70-611. The factor to be applied to the otherwise applicable limit in this case is 7 / [7 + 2(1)] = 7/9.

.03 Alternative rule. If a plan provides benefits in case of death before retirement, the plan is integrated if the benefits or the offset to the benefits does not exceed the limitation which 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. The applicable factor, therefore, equals the ratio of (a) the value of the employee's retirement benefit to (b) the sum of the values of the employee's retirement benefit and the death benefits provided under the plan in the case (generally determined on the basis of age) where such ratio is minimized.

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 which 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 benefits or the offset to the benefits does not exceed the limitation which would be applicable if the form of retirement benefit were a straight life annuity, multiplied by the percentage in the following table which corresponds to the form of retirement benefit under the plan:

 Form of Retirement Benefit:                           Percentage

 

       Annuity for 5 years certain and life thereafter _______ 97

 

       Annuity for 10 years certain and life thereafter ______ 90

 

       Annuity for 15 years certain and life thereafter ______ 80

 

       Annuity for 20 years certain and life thereafter ______ 70

 

       Life annuity with installment refund __________________ 90

 

       Life annuity with cash refund _________________________ 85

 

       Life annuity with one-half continued to surviving

 

         spouse of employee __________________________________ 80

 

 

      Note.--The term "cash refund" refers to refund of accumulated

 

 employer contributions, and does not refer to refund of only employee

 

 contributions, often referred to as "modified cash refund."

 

 

Example. A unit-benefit excess plan provides normal annual retirement benefits equal to 1% of actual compensation in excess of the taxable wage base for each year of credited service prior to normal retirement age 65. In the event of the death of any active or retired employee, a straight life annuity will be paid to the employee's widow in an amount equal to one-half of the employee's retirement benefit or one-half of the employee's accrued benefit according to whether the employee was retired or active at the time of his death. Such plan is not integrated because the rate of benefit for each year of service (1%) exceeds 0.98% (1.4 X 7/8 X 80%).

Sec. 10. Early Retirement Under Excess Plans.

An excess plan which satisfies the requirements of section 4 except that it provides benefits attributable to employer contributions in case of retirement or severance of employment before age 65 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 normal retirement age lower than age 65 and to plans permitting such early retirement on an optional basis.

.01 Deferred annuity beginning no earlier than age 65. No adjustment is required to the limitation of section 6.02, 6.03, or 6.04 (whichever is applicable) on the benefits provided under a unit-benefit excess plan.

The maximum allowable benefits which may be provided for any employee under a flat-benefit excess plan or a unit-benefit excess plan described in section 6.05 are the maximum benefits beginning at age 65 which may be provided under a flat-benefit excess plan with the same integration level, multiplied by a fraction, not to exceed 1, the numerator of which is the actual number of years of service with the employer at retirement or severance, and the denominator of which is the number of years of service with the employer that the employee would have if he remained in service until age 65.

.02 Benefits payable before age 65. 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 presumed 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, and reduced actuarially for each additional year thereafter.

2. In the case of a flat-benefit excess plan, the maximum allowable benefit beginning at age 65, reduced by 1/12 for each of the first five years and 1/24 for each additional year by which the starting date of the annuity precedes age 65.

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

Example. A unit-benefit excess plan which meets the requirements of section 4 provides normal annual retirement benefits equal to 11/4% of average annual compensation in excess of $5,400 multiplied by the number of years of credited service not in excess of 30 years. On early retirement or termination of employment, the plan provides a benefit equal to the accrued normal retirement benefit, with payment deferred to age 65.

Such plan does not meet the requirements of section 6.03 because the benefit rate exceeds 1%. Therefore, under section 10.01, the deferred early retirement benefit may not exceed 371/2% of average annual compensation in excess of $5,400, multiplied by the fraction referred to in section 10.01. In the case of employees hired prior to age 35, the plan benefits exceed the applicable limitation. Such plan is not integrated.

If, for example, the early retirement and termination of employment benefits were equal to the benefits accrued to age 65, multiplied by the ratio that the actual number of years of service of the employee at retirement or severance bears to the total number of years of service he would have had if he had remained in service until age 65, payable in the form of a deferred annuity beginning at such age, the benefits under this plan would be integrated.

Sec. 11. Early Retirement Under Offset Plans.

An offset plan which satisfies the requirements of section 4 except that it provides benefits in case of retirement or severance of employment before age 65 is integrated:

.01 Where the benefits are paid in the form of a deferred annuity commencing no earlier than age 65 or where such benefits are not reduced by any offset until age 65 or later, if the amount of the offset to such benefits is determined by applying the maximum allowable offset rate to whichever of the following is uniformly applicable under the plan:

1. The old-age insurance benefit to which the employee would be entitled at age 65 based upon the assumption that he will not receive after retirement or severance any income which would be treated as wages for purposes of the Social Security Act, or

2. The old-age insurance benefit to which the employee would be entitled at age 65, based upon the assumption that he will continue to receive until reaching age 65 compensation which would be treated as wages for purposes of the Social Security Act at the same rate as he received such compensation at the time of retirement or severance, multiplied by a fraction, the numerator of which is the actual number of years of service with the employer at retirement or severance, and the denominator of which is the number of years of service with the employer that the employee would have if he remained in service until age 65.

.02 Where the benefits are paid in any form other than a deferred annuity commencing no earlier than age 65, 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.

Example. An offset plan which meets the requirements of section 4 provides normal annual retirement benefits commencing at age 65 equal to 50% of average annual compensation less 50% of the old-age insurance benefits, as set forth in the Social Security Act as in effect at the time at which the offset is first applied, to which the employee is, or would on application be, immediately entitled. Upon termination of employment after age 55, an employee who has 15 or more years of service is entitled to a benefit payable at age 65 equal to 50% of average annual compensation less 50% of the old-age insurance benefits, as set forth in the Social Security Act as in effect at the time the employee becomes age 65, to which the employee would be immediately entitled computed as if he received wages from covered employment under OASDI until age 65 at the same rate he was receiving just before termination of employment. Such plan is integrated because the offset does not exceed 831/3% (section 7.01) times the minimum possible fraction, determined in accordance with section 11.012, of 15 years of actual service divided by 25 years of service at age 65, or 60%, which equals 50%.

If only 10 years of service were required for entitlement to termination of employment benefits such plan would not meet the requirements of section 11.012 because the minimum possible fraction determined in accordance with section 11.012 would be 10/20 or 50%, which, when multiplied by the 831/3% normal retirement limit, would equal a limit on the offset for termination of employment benefits of 412/3% compared to the actual offset of 50%.

Sec. 12. Benefits in Case of Disability Before Age 65.

.01 Excess plans. 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:

1. It provides a benefit commencing immediately and payable for life or until recovery from disability before age 65

(a) no greater than the maximum allowable benefit which could be paid as normal retirement benefit if the employee remained in service until age 65, multiplied by the greater of 7/10 or the fraction described in section 10.01, or

(b) if the plan is a unit-benefit excess plan (other than the plan described in section 6.05), no greater than the retirement benefit accrued under such plan to the date of disability retirement, without actuarial reduction for payment before age 65,

such plan is integrated only if the term "disability" is defined and the rules with respect thereto are uniformly and consistently applied to all employees in similar circumstances, and disability benefits under the plan are payable only for the period of time when an employee is eligible for and receives disability benefits under the Social Security 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. The plan may provide that an employee who has applied for disability benefits under the Social Security Act is eligible for disability benefits under the plan pending subsequent favorable disposition of such application by the Social Security Administration.

2. It provides a benefit commencing at age 65 and payable for life thereafter no greater than the maximum allowable benefit which could be paid as a normal retirement benefit if the employee remained in service until age 65 with no change in compensation after becoming disabled and before reaching that age, such plan is integrated only if the term "disability" is defined and the rules with respect thereto are uniformly and consistently applied to all employees in similar circumstances, no integrated disability benefits are payable before age 65, and the employee is eligible for and receives disability benefits under the Social Security Act for the period of time from his date of disability (after the waiting period required under the Social Security Act) continuously until age 65.

.02 Offset plans. If an offset plan satisfies the requirements of section 4 except that, in case of retirement or severance of employment due to disability before age 65, it provides disability benefits, such plan is integrated only if the term "disability" is defined and the rules with respect thereto are uniformly and consistently applied to all employees in similar circumstances and if the offset to any employee's benefit after age 65 does not exceed 90% of the limitation which would be applicable if the plan did not provide such disability benefits and if the offset to any employee's disability benefit before age 65 does not exceed 64% of the employee's actual disability benefit under the Social Security Act as in effect at the time of his retirement for disability.

Example. An offset plan satisfies the requirements of section 4 except that it provides disability benefits to an employee who terminates employment due to disability before age 65 and who is receiving disability benefits under the Social Security Act. The normal annual retirement benefits under the plan, payable for life upon retirement at age 65, equal 50% of average annual compensation less 75% of the old-age insurance benefits, as set forth in the Social Security Act as in effect at the time the employee retires, to which the employee is, or would on application be, immediately entitled. If an employee terminates employment due to disability before age 65, annual benefits are payable, while remaining continuously disabled, until age 65 equal to 50% of average annual compensation (computed as of the date of disablement) less 64% of the employee's actual disability benefit under the Social Security Act as in effect at the time of his retirement for disability. After age 65, benefits revert to the benefits otherwise payable as normal retirement benefits (with average annual compensation computed as of the date of disablement). Such plan is integrated because the rate of offset after age 65 does not exceed 75%, i.e., 90% of 831/3% (section 7.01), and the rate of offset to the employee's Social Security disability benefit before age 65 does not exceed 64%.

.03 Plans not requiring Social Security disability benefits receipt. If a plan provides that disability benefits are payable under conditions that do not meet the requirements of section 12.01 or 12.02, whichever is applicable, such benefits will be treated as early retirement benefits and must satisfy the applicable requirements of section 10 or 11 (whichever is applicable). In determining whether such requirements are satisfied, a special disabled life mortality table may not be used in the computation of equivalent actuarial values.

Sec. 13. 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 which 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 which 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. Alternatively, credit for such amounts may be taken into account under this section if no credit for such amounts is given in determining the amount of death benefits under section 8.01 of this revenue ruling.

.01 Unit-benefit excess plans basing benefits on actual compensation. In the case of a plan described in section 6.02, the maximum benefit rate for any year in which the employee contributes may be increased by the rate of employee contributions, multiplied by one-sixth.

.02 Unit-benefit excess plans basing benefits on average annual compensation. In the case of a plan described in section 6.03, the maximum benefit rate for any year in which the employee contributes may be increased by the rate of employee contributions, multiplied by one-eighth.

.03 Other excess plans. In the case of other excess plans, the maximum benefit determined in accordance with section 5 or 6 may be increased by the employee's aggregate contributions, multiplied by the appropriate fraction specified in section 13.01 or 13.02.

.04 Payment of benefits before age 65. The amount by which benefit rates or benefits may be increased under this section is applicable only where payment of benefits commences no earlier than age 65. Accordingly, if the starting date of the annuity precedes age 65, the amount of any such increase may not exceed the actuarial equivalent (which may be determined in accordance with section 10.02) at such starting date of the amount determined in accordance with this section.

Example. A unit-benefit excess plan which is established January 1, 1972, meets all of the requirements of section 4 and provides normal annual retirement benefits for service after the date of inception of the plan equal to 1.8% of actual compensation in excess of $9,000, or the taxable wage base, if higher, during each year of service subsequent to such date. Each participant is required to make regular contributions of 2.4% of his actual compensation in excess of the integration level. Such plan is integrated because the integration level does not exceed the taxable wage base, and the rate of benefit for each year of contributory service does not exceed 1.8%, which is (a) 1.4% plus (b) the increase for employee contributions from section 13.01 of 1/6 X 2.4% = 0.4%.

Sec. 14. Money-Purchase Plans.

A money-purchase excess plan under which employer contributions are based on compensation in excess of an integration level meeting the requirements of section 6.01 or 6.04 is integrated if:

.01 With respect to any service, the rate of employer contributions with respect to actual compensation does not exceed 7% (multiplied by, if applicable, the fraction specified in section 6.04).

.02 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 5% (multiplied by, if applicable, the fraction specified in section 6.04) for each year of service prior to the inception of the plan.

Alternatively, the benefits for service prior to the inception of the plan may be provided in accordance with section 6.

Sec. 15. Profit-Sharing and Stock Bonus Plans.

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

.01 The plan's integration level meets the requirements of section 6.01 or 6.04;

.02 The rate at which employer contributions and forfeitures 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 7% (multiplied by, if applicable, the fraction specified in section 6.04), 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. 16. Step-Rate Excess Plans.

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, disability 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 be two plans:

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

.02 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.

Only the plan described in section 16.02 is subject to the requirements of this Revenue Ruling.

Example. A flat-benefit excess plan which meets the requirements of section 4 provides normal retirement benefits equal to 10% of the first $3,600 and 471/2% of the excess over $3,600 of each employee's average annual compensation. Such plan is integrated because the benefit rate of 10% of all compensation may be eliminated for the purpose of testing conformance to integration requirements since the rate applies uniformly to all employees. There remains an excess benefit rate of 371/2% which meets the requirements of section 5.

Sec. 17. 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) which the actual benefits, benefit rate, offset rate, or employer contribution rate under the plan bears to the limitation applicable to such plan.

Sec. 18. 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 14 or 15) 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 14 or 15) 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 which may be provided for him under an integrated plan of the same type. This requirement will be deemed to be satisfied by a plan which satisfies the requirements of Rev. Rul. 60-337, C.B. 1960-2, 151, PS No. 45, dated January 26, 1945, or section 18.01 or 18.02.

.01 Variable annuity plans. In the case of a unit-benefit excess plan basing benefits on actual compensation which satisfies the requirements of section 6.02 (or, if applicable, section 6.04), where earnings in excess of those assumed in determining employer contribution 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 basing benefits on actual compensation which satisfies the requirements of section 6.02 (or, if applicable, section 6.04), such plan is integrated even though all or a portion of the benefits varies before retirement or severance of employment with the fluctuations of a specified and generally recognized cost-of-living index.

In the case of a plan which otherwise satisfies the requirements of this Revenue Ruling, such plan is integrated even though all or a portion of the benefits varies after retirement or severance of employment with the fluctuations of a specified and generally recognized cost-of-living index.

Sec. 19. Plans With Two Integration Levels

.01 Basic Limitation. An excess plan containing two integration levels is integrated if the benefit rate (or employer contribution rate) applicable at each integration level does not exceed the otherwise applicable limitation at such integration level, in a plan with only that one integration level.

Example. A flat-benefit excess plan which meets the requirements of section 4 provides normal annual retirement benefits upon retirement at age 65 with at least 15 years of service equal to 20% of average annual compensation in excess of $3,000 but not in excess of $5,400, plus 371/2% of average annual compensation in excess of $5,400. Such plan is integrated because neither of the benefit rates exceeds 371/2% (i.e., the limitation of section 5.021).

.02 Alternative Limitation. An excess plan containing two integration levels in which the lower integration level is less than the maximum integration level specified in section 6.01 (section 5.01 in the case of a flat-benefit excess plan) is integrated if the rate at which the normal retirement benefit is provided with respect to actual compensation (in the case of a unit-benefit excess plan) or average annual compensation (in the case of a flat-benefit or unit-benefit excess plan), or the rate of employer contributions (in the case of a money-purchase, profit-sharing or stock bonus excess plan) with respect to actual compensation, in excess of the lower integration level does not exceed the otherwise applicable limitation at such integration level, in a plan with only that one integration level and the rate with respect to the applicable compensation in excess of the higher integration level does not exceed the sum of:

1. The actual normal annual retirement benefit provided on (or, the actual employer contribution with respect to, in the case of a money-purchase, profit-sharing, or stock bonus excess plan) the portion of the applicable compensation in excess of the lower integration level but not in excess of the higher integration level (reduced by any benefit that, in accordance with section 13, is deemed attributable to employee contributions, in the case of a flat-benefit or unit-benefit excess plan), except that such normal annual retirement benefit or employer contribution considered for this purpose shall be limited in accordance with section 19.023 below, divided by the higher integration level, plus.

2. The applicable limitation determined in accordance with section 5 (in the case of a flat-benefit excess plan) or section 6 (in the case of a unit-benefit excess plan) and adjusted in accordance with sections 8, 9, 10, 12, and 13, or, the applicable rate (in the case of a money-purchase, profit-sharing or stock bonus excess plan) determined in accordance with section 14 or 15.

3. For the purpose of section 19.021 above, the benefits or employer contributions should be split, if applicable, into two portions; one portion being that which is attributable to compensation below the maximum integration level specified in section 5.01 or one of the subsections of section 6.01, whichever is applicable, in a plan with one integration level and the same form of benefits as the plan established by the employer, and the other portion being that which is attributable to compensation above such maximum integration level. Only benefits (or employer contributions) based on compensation below such maximum integration level need be limited for the purpose of section 19.021, in the manner indicated below. For the purpose of computing the actual benefit (employer contribution) in section 19.021, assume that the actual benefit rate (employer contribution rate) provided on compensation in excess of the plan's lower integration level but not in excess of the maximum integration level described above, is limited to a constant (adjusted in accordance with sections 8, 9, 10, 12, and 13) divided by the plan's lower integration level, the value of such constant depending on the form of the benefits as follows:

 Form of benefits:                                           Constant

 

      Flat-benefit excess plan ______________________________ $660.00

 

      Unit-benefit excess plan basing benefits on

 

        actual compensation _________________________________   24.64

 

      Unit-benefit excess plan basing benefits on

 

        average annual compensation _________________________   17.60

 

      Money-purchase, profit-sharing, or stock bonus plan ___  123.20

 

 

Example. A flat-benefit excess plan without employee contributions that meets the requirements of section 4 provides normal annual retirement benefits upon retirement at age 65 with at least 15 years of service equal to 371/2% of average annual compensation in excess of $4,800 but not in excess of $9,000, plus 391/3% of average annual compensation in excess of $9,000. The earliest year in which any present or potential future participant can retire and receive benefits is 1972. Such plan is integrated; this is determined as follows:

1. Rate of benefit applicable to compensation between $4,800 and $9,000 does not exceed 371/2%; the limitation of section 5.021.

2. Rate of benefit applicable to compensation in excess of $9,000 does not exceed 391/3%:

 (a) Plan's lower integration level...................... $4,800

 

 (b) Plan's higher integration level..................... $9,000

 

 (c) Maximum integration level referred to in

 

       section 19.023 for the year 1972.................. $6,000

 

 (d) "Constant" for the form of benefit, divided

 

       by (a): $600 / $4,800............................. 13.75%

 

 (e) Lesser of (d) and benefit rate actually

 

       provided (371/2%) between (a) and (c)............. 13.75%

 

 (f) Assumed benefit provided between (a) and

 

       (c): 13.75% X ($6,000 - $4,800)...................   $165

 

 (g) Benefit actually provided between (c) and

 

       (b): 371/2% X ($9,000 - $6,000)................... $1,125

 

 (h) Total: (f) + (g).................................... $1,290

 

 (i) Rate defined by section 19.021: (h) / (b)........... 141/3%

 

 (j) Section 19.022 rate (determined from

 

       sections 5.03 and 5.04): 371/2% X (c) / (b).......    25%

 

 (k) Total limitation applicable to compensation in

 

       excess of (b): (i) + (j).......................... 391/3%

 

 

Sec. 20. Minimum Benefits or Contributions, Rounding of Benefits, and Salary or Wage Brackets.

A plan is integrated notwithstanding the fact that it provides a minimum benefit attributable to employer contributions which 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 satisfy the 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 old-age, survivors, and disability insurance benefits. 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.

A plan in which the benefits are not expressed precisely in terms of percentages of compensation, or in terms of multiples of $10 a month as provided above, but are instead approximately related to compensation by use of a benefit schedule whereby uniform benefits are provided for all employees whose compensation falls into a particular bracket is considered an integrated plan if the benefit provided in each bracket satisfies the requirements of this Revenue Ruling when applied to compensation at the midpoint of the bracket, provided that the brackets do not cover a range of more than $400 of annual compensation. Larger brackets, not covering a range of more than $1,000 of annual compensation per bracket, are permissible in the higher compensation ranges but only if the benefit in each bracket would meet the requirements of this Revenue Ruling when applied to compensation $200 above the bottom of the bracket.

Example. A flat-benefit excess plan provides normal annual retirement benefits at age 65 after 15 years of service for 10 years certain and life thereafter. The plan is intended to provide an amount of such benefits equal to approximately 30% of average annual compensation for the five highest consecutive years in excess of $5,400, with a minimum benefit of $240 a year. Only employees whose compensation exceeds of $5,400 are eligible for benefits. Compensation for purposes of this plan is taken as salary (basic compensation), which, in this case, satisfies the requirements of section 3.03. Death benefits before age 65 (the plan is funded solely by typical "retirement income" contracts) are equal to the greater of the reserve or 100 times the anticipated monthly retirement income. Early retirement benefits are provided by the reserve. No other benefits are provided under the plan.

Set forth below are three scales of benefits designed to implement the normal retirement benefit formula of this plan. The benefit scale in column (1) illustrates an acceptable application of the minimum benefit and salary brackets in accordance with this section. The benefit scale in column (2) is unacceptable, because the benefits have been built on top of the $240 minimum so as to use part of such minimum as a tolerance. The benefit scale in column (3) is unacceptable because, where the brackets are larger than $400, the benefits do not integrate at a point $200 above the bottom of the bracket.

 --------------------------------------------------------------------

 

 

                                            (1)        (2)      (3)

 

 

  Average annual salary                 Annual retirement benefit

 

  for five highest con-    Midpoint  --------------------------------

 

     secutive years                     Acceptable   Unacceptable

 

 

 --------------------------------------------------------------------

 

 

 $5,400.01-$5,800.... $5,600.............  $240       $240     $240

 

 5,800.01- 6,200.....  6,000.............   240        300      240

 

 6,200.01- 6,600.....  6,400.............   300        420      300

 

 6,600.01- 7,000.....  6,800.............   420        540      420

 

 7,000.01- 7,600.....  7,200/*/..........   540        660      570

 

 7,600.01- 8,200.....  7,800/*/..........   720        840      750

 

 

 --------------------------------------------------------------------

 

 

 Each additional         $200 above

 

   $600............ bottom of bracket/*/-- $180       $180     $180

 

 

 --------------------------------------------------------------------

 

 

      * These salaries are not the actual midpoints of the brackets,

 

 but are the salaries at which integration must be tested.

 

 

Sec. 21. Applicability

.01 Plans not in effect on May 17, 1971. A plan which was not in effect on May 17, 1971, is integrated only if it satisfies in all respects the applicable requirements of section 1.401-3(e)(2) of the regulations, as amended by T.D. 7134, and of sections 3 through 20 of this Revenue Ruling.

.02 Plans in effect on May 17, 1971, but not in effect on July 5, 1968. A plan which was in effect on May 17, 1971, but which was not in effect on July 5, 1968, will be considered to be integrated if it satisfies the requirements of section 21.01 above, but it will also be considered to be integrated notwithstanding the fact that it does not satisfy such requirements before April 1, 1972, if, at all times from the date the plan was put into effect until April 1, 1972, it satisfies in all respects the applicable requirements of:

1. Sections 3 through 18 of Rev. Rul. 69-4, C.B. 1969-1, 118, as amplified by Rev. Rul. 69-371, C.B. 1969-2, 92; by Rev. Rul. 69-503, C.B. 1969-2, 94; by Rev. Rul. 69-586, C.B. 1969-2, 94; by Rev. Rul. 70-42, C.B. 1970-1, 94: by Rev. Rul. 70-448, C.B. 1970-2, 87; and by Rev. Rul. 70-610, C.B. 1970-2, 88, and

2. Rev. Rul. 69-5, C.B. 1969-1, 125.

.03 Plans in effect on July 5, 1968. A plan which was in effect on July 5, 1968, will be considered to be integrated if it satisfies the requirements of section 21.01 above, but it will also be considered to be integrated notwithstanding the fact that it does not satisfy such requirements until April 1, 1972, if, on July 5, 1968, and at all times until April 1, 1972, it satisfies in all respects the applicable requirements of any one of the following:

1. Mimeograph 5539, C.B. 1943, 499, as amplified by PS No. 30, dated September 16, 1944, and Part 4(i)(2) of Rev. Rul. 57-163, C.B. 1957-1, 128 at 143-144, or

2. Mimeograph 6641, C.B. 1951-1, 41, as amended by Rev. Rul. 13, C.B. 1953-1, 294; by Rev. Rul. 56-692, C.B. 1956-2, 287; by Rev. Rul. 61-75, C.B. 1961-1, 140; and by Rev. Rul. 68-369, C.B. 1968-2, 172, or,

3. Rev. Rul. 67-10, C.B. 1967-1, 84, or,

if, on July 5, 1968, and at all times until some particular date earlier than April 1, 1972, it satisfies in all respects the applicable requirements of any one of section 21.031, section 21.032 or section 21.033, and if, from such particular date and at all times until April 1, 1972, it satisfies in all respects the applicable requirements of sections 21.021 and 21.022, and if the benefits for any employee retiring on or after April 1, 1972 (or some earlier specified date) satisfy the requirements of section 22.

For purposes of this section and section 22, Part 2(f) of Rev. Rul. 69-421, C.B. 1969-2, 59, shall be applicable in determining whether a plan was in effect at any given date.

Sec. 22. Transitional Rules for Certain Plans

.01 Excess plans. An excess plan which was in effect and was integrated on July 5, 1968 (hereinafter referred to as an "existing plan"), will be considered to be integrated after March 31, 1971 (or some earlier specified date), if the benefits for each employee retiring after March 31, 1971 (or such earlier specified date), equal the sum of:

1. Either (1) the benefits to which he would be entitled under an excess plan which satisfies in all respects the applicable requirements of any one of the prior integration rules set forth in sections 21.031, 21.032 or 21.033 and which has the same benefit rate and the same integration level as the existing plan, multiplied by the percentage of his total service with the employer performed before such specified date, or (2) the benefits (payable as a deferred annuity commencing at normal retirement age) under the existing plan to which he would be entitled if he terminated employment (having satisfied any requirements as to age and service) on such specified date, and 2. The benefits to which he would be entitled under an excess plan which satisfies in all respects the applicable requirements of sections 3 through 20 of this Revenue Ruling, multiplied by the percentage of his total service with the employer performed on and after such specified date.

.02 Offset plans. An offset plan which was in effect and was integrated on July 5, 1968 (hereinafter referred to as an "existing plan"), will be considered integrated after March 31, 1971 (or some earlier specified date), if the amount of the offset to the benefits for each employee retiring after March 31, 1971 (or such earlier specified date), equals the sum of:

1. The amount of the offset to the benefits which would be determined under an offset plan which satisfies in all respects the applicable requirements of any one of the prior integration rules set forth in section 21.031, 21.032 or 21.033, which has the same offset rate as the existing plan, and under which the amount of the offset is computed on the basis of the Social Security Act as in effect on the same day as that specified in the existing plan, multiplied by the percentage of his total service with the employer before such specified date, and

2. The amount of the offset to the benefits which would be determined under an offset plan which satisfies in all respects the applicable requirements of sections 3 through 20 of this Revenue Ruling, multiplied by the percentage of his total service with the employer on and after such specified date.

.03 Service with the employer. For purposes of this section, an employee's total service means all service with the employer, plus any additional service (such as with a former employer) for which credit is given under the plan.

.04 Benefit and offset rate. For purposes of sections 22.011 and 22.021, a plan's benefit or offset rate shall be the actual rate at which benefits are provided or the offset is computed, less any adjustment required under the provisions of prior integration rules corresponding to section 13 of this Revenue Ruling and further divided by any adjustment required under the provisions of prior integration rules corresponding to sections 8 through 12 of this Revenue Ruling. Thus, for example, the benefit rate of a plan where employees make no contributions and under which the benefit is a 30% annuity for 10 years certain and life thereafter is 331/3% (i.e., 30% / 90%).

.05 Special minimum benefit. A plan which was in effect and was integrated on July 5, 1968, may provide a minimum total benefit for each employee (other than an employee who, at any time prior to retirement or severance, owns directly or indirectly, stock possessing more than 10% of the total combined voting power or value of all classes of stock of the employer) equal to the benefit to which he would be entitled under the plan as in effect on July 5, 1968, if his compensation continued until retirement or severance at the same rate as in calendar year 1967, or during the most recent plan year which ended before July 6, 1968.

.06 Effect of transitional rules. If a plan is amended in accordance with this section in such a way so as to reduce benefits an employee might have received had the plan not been so amended, such amendment will not, solely of itself, constitute a partial termination of the plan within the meaning of section 1.401-6(b)(2) of the regulations.

Example 1. Flat-benefit excess plans with disability benefits. A flat-benefit excess plan which was in effect on July 5, 1968 provides normal annual retirement benefits, payable monthly for life upon retirement at age 65 with at least 15 years of service, equal to 371/2% of average annual compensation in excess of $4,800. The plan conforms to the conditions of paragraph 5 of Mimeograph 6641, C.B. 1951-1, 41, as amended by Rev. Rul. 61-75, C.B. 1961-1, 140, except that disability benefits in the amount, of the type, and under the eligibility conditions pertaining thereto described in section 12.01 of this Revenue Ruling are payable under the plan. The plan could be amended without being considered a partial termination in one of the following ways:

(1) Provide normal annual retirement benefits equal to the sum of:

(a) With respect to the percentage of total service prior to April 1, 1972, 371/2% of average annual compensation in excess of $4,800, plus

(b) With respect to the percentage of total service after March 31, 1971, 333/4% (equal to 90% from section 12.01 times 371/2%) of average annual compensation in excess of $4,800, or

(2) Provide normal annual retirement benefits equal to the sum of:

(a) With respect to the percentage of total service prior to April 1, 1972, 371/2% of average annual compensation in excess of $4,800, plus

(b) With respect to the percentage of total service after March 31, 1971, 371/2% of average annual compensation in excess of $4,800 plus 33/4% of the first $4,800 of average annual compensation, or

(3) Provide normal annual retirement benefits equal to 333/4% of average annual compensation in excess of $4,800, subject to a minimum of 371/2% of average annual compensation in excess of $4,800 computed as if compensation continued until age 65 at the same rate as in 1967 (except that this minimum benefit is not available to any employee who owns more than 10% of the stock of the employer corporation).

Example 2. Money-purchase plans. A money-purchase excess plan which was in effect on July 5, 1968, provides for employer contributions equal to 93/8% of actual compensation each year in excess of $4,800. Such plan must be amended by April 1, 1972, in order to reduce the rate of excess employer contributions to 7% in excess of an integration level meeting the requirements of section 6.01 or 6.04. (Note that the integration level may be left at $4,800, if desired.) This could be done, for example, either (1) by introducing employer contributions of 23/8% on the first $4,800 of actual compensation, or (2) by lowering the rate of employer contributions from 93/8% to 7% of actual compensation in excess of $4,800.

Sec. 23. Union-Negotiated Plans

In the case of a union-negotiated plan which satisfies the requirements of sections 21.021 and 21.022 on January 1, 1972, but which does not satisfy the requirements of the rest of this Revenue Ruling, all references in section 21 and section 22 of this Revenue Ruling to "April 1, 1972" shall be interpreted to mean "90 days after the first date the applicable collective-bargaining agreement in effect on December 31, 1971, is no longer in effect" and all references in such sections to "March 31, 1972" shall be interpreted to mean "90 days after the last date the applicable collective-bargaining agreement in effect on December 31, 1971, is in effect."

DOCUMENT ATTRIBUTES
  • Cross-Reference

    26 CFR 1.401-3: Requirements as to coverage.

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    English
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