Rev. Rul. 71-147

Advice has been requested whether a profit-sharing plan that permits distributions to participants under the circumstances described below may qualify under section 401(a) of the Internal Revenue Code of 1954.

The plan, which otherwise meets the requirements for qualification under section 401(a) of the Code, provides that each participant may elect to retire at age 55 and receive his complete interest thereunder in a lump sum or in the form of equal monthly payments over his expected lifetime. Employees in this particular industry involved, including those employees of the employer who are not covered by the profit-sharing plan, customarily retire at age 65.

Section 1.401-1(b)(1)(ii) of the Income Tax Regulations states that a profit-sharing plan, within the meaning of section 401(a) of the Code, must provide 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 normal retirement age in a pension or annuity plan is the lowest age specified in the 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 set forth in the plan (i.e., without actuarial or similar reduction because of retirement before some later specified age). Ordinarily, the normal retirement age under pension and annuity plans is 65. A different age may be specified, provided that if it is lower than 65 it represents the age at which employees customarily retire in the particular company or industry and is not a device to accelerate funding.

In profit-sharing or stock bonus plans, where there is a stated retirement age it is merely one of several events that may be designated as fixing the time for making distributions. Since the amount of the distributions is dependent upon profits, there is no definitely stated rate of benefits payable at such age. Consequently, the stated retirement age in a profit-sharing or stock bonus plan does not have the same significance as "normal retirement age" in a pension plan.

Accordingly, it is held that this profit-sharing plan qualifies under section 410(a) of the Code.