Rev. Rul. 81-162

The purpose of this revenue ruling is to restate the position in Rev. Rul. 54-67, 1954-1 C.B. 149, under current law.

The issue in Rev. Rul. 54-67 is whether a plan established by an employer that provides employees only such benefits as are afforded through the purchase of ordinary life insurance contracts, which are converted to life annuities at the normal retirement date, constitutes a "pension" plan within the meaning of section 401(a) of the Internal Revenue Code.

Section 1.401-1(b)(1)(i) of the Income Tax Regulations provides that a pension plan within the meaning of section 401(a) of the Code is a plan established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits to employees over a period of years, usually for life, after retirement. A pension plan may also provide for the payment of incidental death benefits through insurance or otherwise.

The primary purpose of an ordinary life insurance contract is to provide life insurance protection, and the reserve accumulated thereon is a result of premium payments being made on a level basis. Such reserve will provide a relatively small retirement annuity in comparison with the annuity that a retirement income contract of the same face amount will provide. Therefore, a plan providing only for the purchase of ordinary life insurance contracts is not primarily for the payment of benefits to employees over a period of years after retirement.

Accordingly, such plan does not qualify as a "pension" plan within the meaning of section 401(a) of the Code. Such a plan is distinguished from a plan that provides incidental life insurance protection.

Rev. Rul. 54-67 is superseded, because the position stated therein is restated under current law in this revenue ruling.