Rev. Rul. 71-255

Advice has been requested whether, under the circumstances described below, section 401(a)(4) of the Internal Revenue Code of 1954 requires a ceiling or similar limitation on the portion of the contributions to or benefits from a qualified pension plan that may be used for an officer-shareholder. A pension plan that otherwise meets the requirements of section 401(a) of the Code provides a retirement benefit of 50 percent of the career average compensation of each participant. An employee who is an officer-shareholder receives 80 percent of the current compensation being paid by the employer and, therefore, is expected to receive a substantial portion of the total pension benefits that will be paid under the plan.

Section 401(a)(4) of the Code requires that a qualified plan must be one under which there is no discrimination in contributions or benefits in favor of employees who are officers, shareholders, supervisors, or highly compensated. However, section 401(a)(5) of the Code provides that a plan shall not be considered discriminatory within the meaning of section 401(a)(3)(B) or (4) merely because the contributions or benefits of or on behalf of the employees under the plan bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of such employees.

In this case the benefits under the plan bear a uniform relationship to compensation and do not discriminate in favor of the groups enumerated in section 401(a)(4) of the Code.

Accordingly, it is held that section 401(a)(4) of the Code does not require a ceiling or similar limitation on the portion of the contributions or benefits that may be used for the officer-shareholder in this case.