Rev. Rul. 73-206

Advice has been requested whether a plan qualifies as a pension plan under section 401(a) of the Internal Revenue Code of 1954 if the employer's contributions are determined on the basis described below.

A corporation established a plan intended to be a money purchase pension plan that would qualify under section 401(a) of the Code. The plan provides that each participant shall make a monthly contribution in an amount between one and six percent of his compensation for that month. Once every six months, participants may elect to increase or decrease their contributions within these limits.

The plan further provides that the employer shall contribute each month an amount equal to the aggregate contributions of all the employees for that month.

Section 1.401-1(b)(1)(i) of the Income Tax Regulations provides that a plan designed to provide benefits for employees or their beneficiaries to be paid upon retirement or over a period of years after retirement will, for the purposes of section 401(a) of the Code, be considered a pension plan if the employer contributions under the plan can be determined actuarially on the basis of definitely determinable benefits, or, as in the case of money purchase pension plans, such contributions are fixed without being geared to profits.

Revenue Ruling 72-302, 1972-1 C.B. 110, holds that, where a plan permits self-employed individuals to elect not to participate in a particular year or to vary the contributions made on their behalf on a year-to-year basis, contributions with respect to them are not fixed as required by section 1.401-1(b)(1)(i) of the regulations in the case of a qualified money purchase plan and the plan does not qualify under section 401 of the Code.

Although Rev. Rul. 72-302 involves self-employed individuals, the provision of the regulations involved and the principle contained therein are applicable to plans that provide for contributions on behalf of common-law employees as well, regardless of the reason for failure of the plan to require that contributions be fixed. Since contributions on behalf of participants in this case can vary on a year-to-year basis, depending on the rate at which they elect to contribute, contributions under the plan are not fixed, as required by section 1.401-1(b)(1)(i) of the regulations.

Accordingly, it is held that this plan does not qualify under section 401(a) of the Code.