Rev. Rul. 80-306

The purpose of this revenue ruling is to restate the position in Rev. Rul. 54-152, 1954-1 C.B. 149, and Rev. Rul. 66-205, 1966-2 C.B. 119, in view of the amendment of section 401(a) of the Internal Revenue Code by the Employee Retirement Income Security Act of 1974, Pub. L. 93-406, 1974-3 C.B. 1.

The issue in the two revenue rulings is whether a pension plan will fail to qualify under section 401(a) of the Code merely because no contributions are made by the employer so that the pension plan is funded by employee contributions only.

An employer established a defined contribution pension plan under which the only contributions are employee contributions. The contributions are deducted from each employee's wages paid by the employer at the rate of (x) cents per hour worked. Benefits under the plan are distributed only upon the death, disability, retirement, or separation from service of an employee.

Section 401(a)(1) of the Code generally provides, in part, that a pension plan of an employer may qualify under section 401(a) if contributions are made by the employer, or employees, or both for the purpose of distributing to such employees or their beneficiaries the corpus and the income of the fund in accordance with the plan.

Thus, a pension plan established and maintained by an employer may be funded by either employer or employee contributions, or both, so long as the plan is not one established by the unilateral action of employees.

Accordingly, the defined contribution pension plan will not fail to qualify under section 401(a) of the Code merely because contributions are only made by employees.

Similarly, a defined benefit pension plan (whether or not the employer retains a liability to provide the plan benefits to the extent the employee contributions are insufficient) will not fail to qualify under section 401(a) of the Code merely because no employer contributions are made under the plan.

This revenue ruling does not deal with whether the employee contributions will of themselves satisfy the minimum funding requirements of section 412 of the Code to the extent such requirements apply.

Rev. Rul. 54-152 and Rev. Rul. 66-205 are superseded because the positions stated therein are restated under current law in this revenue ruling.