Rev. Rul. 79-236

Advice has been requested as to whether the plans of two business entities are properly integrated with social security when the business entities are related in a manner described in section 414(b) or (c) of the Internal Revenue Code of 1954, when each of the plans, without regard to the other plan, is integrated to the maximum extent generally permitted, and when some employees may be covered under both plans.

Business entity X establishes a plan (Plan X) for the benefit of its employees which is integrated to the maximum extent generally permitted under Rev. Rul. 71-446, 1971-2 C.B. 187. Business entity Y also establishes a "fully integrated" plan (Plan Y) for its employees. Neither Plan X nor Plan Y provides contributions or benefits for owner-employees as defined in section 401(c)(3) of the Code. Plan X and Plan Y may cover some of the same employees. X and Y are business entities that are related in a manner described in sections 414(b) or (c) of the Code.

Section 401(a)(5) of the Code provides that a plan will not be discriminatory merely because the plan is integrated with social security. Rev. Rul. 71-446, 1971-2 C.B. 187, provides guidelines for determining whether a plan is properly integrated with social security. Section 17 of Rev. Rul. 71-446 states that if an employer has more than one integrated plan, and if any employee is or may be eligible to participate in more than one of such plans, such plans will be considered to be one plan and will be properly integrated only if the "extent of integration" of all such plans does not exceed 100%. The "extent of integration" of a plan is the ratio, expressed as a percentage, of the actual benefits, benefit rate, offset rate, or employer contribution rate under the plan, to the limitation applicable to such plan as set forth in Rev. Rul. 71-446.

Section 414(b) of the Code provides that for purposes of section 401 of the Code all employees of all corporations which are members of a controlled group of corporations (within the meaning of section 1563(a)) shall be treated as employed by a single employer. Section 414(c) of the Code provides that for purposes of section 401 all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer.

The integration rules of Rev. Rul. 71-446 are written under section 401 of the Code. Accordingly, for purposes of applying the multiple integrated plan rules of section 17 of Rev. Rul. 71-446, all employers related in a manner described in sections 414(b) or (c) of the Code are treated as a single employer. In the instant case, because each of the plans is "fully integrated" (i.e., the "extent of integration" equals 100%), and because both plans may cover some of the same employees, the plans do not properly integrate. Therefore, the integration rule set forth in section 401(a)(5) of the Code will not be satisfied and sections 401(a)(4) and 410(b) of the Code may be violated.