Rev. Rul. 75-480

Section 1. Purpose

The purpose of this Revenue Ruling is to modify Rev. Rul. 71-446, 1971-2 C.B. 187, to reflect changes made by the Employee Retirement Income Security Act of 1974 (Pub. Law No. 93-406) [1974-3 C.B. 1]. Rev. Rul. 71-446 provides guidelines for determining whether the benefits of a plan integrate properly with the benefits provided by social security.

Sec. 2. Background Information

.01 1/12-1/24 Rule--

(1) Section 10 of Rev. Rul. 71-446 provides an adjustment to the integration limit in the case of a participant who separates from service before age 65. Section 10 of Rev. Rul. 71-446 permits several options in the case of such a participant. One such option, section 10.022 of Rev. Rul. 71-446, provides, in the case of an employee who separates from service before age 65 in a flat benefit excess plan and receives an immediate annuity, that the integration limit will be reduced 1/12 for each of the first five years that early retirement precedes age 65 and 1/24 for each additional year.

(2) Section 411 of the Internal Revenue Code of 1954 provides that certain benefits must be nonforfeitable. Section 411(a)(3) provides certain exceptions to the nonforfeitability rule. There are no exceptions to the nonforfeitability rule other than those enumerated in section 411(a)(3). A reduction on retirement before age 65 in excess of a true actuarial equivalent would generally cause a forfeiture not enumerated in section 411(a)(3) of the Code and, therefore, would be in violation of the minimum vesting standards of section 411. The 1/12-1/24 rule of section 10.022 would, in certain instances, result in such an excess reduction.

.02 Offset Early Retirement--

(1) Section 11 of Rev. Rul. 71-446 provides an adjustment to the integration limit in the case of an employee who separates from service before age 65. Section 11.012 of Rev. Rul. 71-446 permits the offset to be computed in the case of such a person as the primary insurance that the person receives at age 65 multiplied by the ratio of the number of years of service with the employer to the number of years of service the employee would have with the employer if he worked until age 65.

(2) Section 401(a)(15) of the Code provides, in certain instances, that increases in social security after an employee separates from service cannot be used to reduce benefits a participant would receive under a plan. The method described in section 11.012 of Rev. Rul. 71-446 does not satisfy the requirements of section 401(a)(15).

.03 Three Percent Method--Section 411(b) of the Code requires that the accrued benefit under a plan satisfy one of several specific tests. One specific test permitted is the three percent method described in section 411(b)(1)(A). The accrual on this method will cause a plan whose normal retirement benefit is fully integrated to exceed the integration limit because of the adjustments required by sections 10 and 11 of Rev. Rul. 71-446 in the case of an employee who separates from service before age 65.

Sec. 3. Basic Guidelines

.01 Section 10.021 of Rev. Rul. 71-446 is hereby deleted.

.02 Section 11.012 of Rev. Rul. 71-446 is hereby deleted.

.03 A plan, using the three percent method described in section 411(b)(1)(A) of the Code must satisfy the requirements of both such section of the Code and of sections 10 or 11, whichever is applicable, of Rev. Rul. 71-446. Thus, the three percent method cannot be used when the normal retirement benefit is fully integrated. The three percent method may, however, be used only when the normal retirement benefit is partially integrated so that both the requirements of the applicable sections of Rev. Rul. 71-446 and of section 411(b)(1)(A) are satisfied.

Sec. 4. Effective Dates

.01 Section 3.01 of this Revenue Ruling is effective only with respect to plans subject to the requirements of section 411 of the Code as of the effective date of section 411.

.02 Section 3.02 is effective only with respect to plans subject to section 401(a)(15) of the Code as of the effective date of section 401(a)(15).

.03 Section 3.03 of this Revenue Ruling is effective immediately.

Sec. 5. Effect on Other Documents

Rev. Rul. 71-446 is hereby modified as provided in section 3 above.