Rev. Rul. 71-295

The purpose of this Revenue Ruling is to update and restate under the current statute and regulations, Revenue Ruling 54-231, C.B. 1954-1, 150. The question presented is whether a profit-sharing plan may be qualified if it permits an employee to withdraw his employer's contributions under the circumstances described below.

The profit-sharing plan permits an employee to withdraw any portion of his employer's contribution 18 months after it is made. There is no other condition in the plan on the employee's right to withdraw.

Section 401(a) of the Internal Revenue Code of 1954 prescribes the requirements that must be met for qualification of a trust forming part of a pension, profit-sharing, or stock bonus plan.

Section 1.401-1(b)(1)(ii) of the Income Tax Regulations provides that a profit-sharing plan must provide a definite predetermined formula for allocating the contributions made to the plan among the participants and for distributing the funds accumulated under the plan after a fixed number of years, the attainment of a stated age, or upon the prior occurrence of some event such as layoff, illness, disability, retirement, death, or severance of employment.

The term "fixed number of years" is considered to mean at least two years.

Accordingly, it is held that a plan which permits any employee to withdraw any portion of his share of the employer's contribution 18 months after it has been made without regard to the attainment of a stated age or the occurrence of some event such as layoff, illness, disability, retirement, death, or severance of employment is not a profit-sharing plan within the purview of section 401(a) of the Code.

Revenue Ruling 54-231, is hereby superseded since the position stated therein is restated under the current law and regulations in this Revenue Ruling.