Rev. Rul. 80-350

The purpose of this revenue ruling is to restate Rev. Rul. 59-185, 1959-1 C.B. 86, and Rev. Rul. 69-217, 1969-1 C.B. 115, under current law.

The issue in these two revenue rulings is whether an employee benefit plan will fail to qualify under section 401(a) of the Internal Revenue Code merely because it permits total voluntary employee contributions equal to 10 percent of the employee's aggregate compensation for all years since the employee became a participant under the plan.

A corporation established an employee benefit plan that in addition to the benefit derived from employer contributions, provided the additional retirement benefit that can be purchased with the participant's voluntary contributions and the earnings thereon. Voluntary contributions may be made in any year so long as the total of such contributions for all years does not exceed 10 percent of the aggregate compensation received for all years since the employee became a participant under the plan. Employee contributions and earnings thereon are nonforfeitable.

The tax advantages provided under a qualified employee plan were not intended by Congress to be extended to unlimited contributions by employees made primarily to escape tax on the increments thereon. However, where the purpose of a voluntary contribution feature in a plan is to encourage savings by participants, such feature is acceptable provided the contributions are kept within reasonable bounds. In this respect, employee contributions are deemed to be reasonable if they do not exceed 10 percent of the employee's aggregate compensation for all years since becoming a participant. Of course, the additional amounts voluntarily contributed by the employees must be used only for the purpose of providing benefits to the individual contributor in addition to the benefits provided by the employer's contributions.

Accordingly, the employee benefit plan in this case will not fail to qualify, under section 401(a) of the Code, merely because it permits total voluntary employee contributions equal to 10 percent of the employee's aggregate compensation for all years since the employee became a participant thereunder.

This revenue ruling does not provide guidance with respect to whether any voluntary employee contributions will result in a violation of section 415 of the Code.

Rev. Ruls. 59-185 and 69-217 are superseded because the positions stated therein are restated under current law in this revenue ruling.