Rev. Rul. 81-48

The purpose of this revenue ruling is to restate the position set forth in Rev. Rul. 69-158, 1969-1 C.B. 126, in view of the enactment of the Employee Retirement Income Security Act of 1974, Pub. L. 93-406, 1974-3 C.B. 1.

The issue in Rev. Rul. 69-158 is whether the contributions under a profit-sharing plan are discriminatory within the meaning of section 401(a)(4) of the Internal Revenue Code of 1954.

An employer has a profit-sharing plan that provides contributions for all employees who have been with the company for one year. The plan makes provision for two groups of participants. The first group consists of certain employees who are officers, shareholders, or highly compensated. The second group consists of all other participating employees.

Under the contribution formula set forth in the plan, contributions for the first group equal 20 percent of each employee's compensation and for the second group equal 10 percent of compensation.

Section 401(a)(4) of the Code provides that a trust forming part of a profit-sharing plan of an employer will meet the requirements of that section if the contributions or the benefits provided under the plan of which it is a part do not discriminate in favor of employees who are officers, shareholders, or highly compensated.

The contribution formula in this plan expressly permits a larger rate of contributions for the employees in whose favor discrimination is prohibited than for other employees.

Accordingly, the contributions are discriminatory within the meaning of section 401(a)(4) of the Code.

Rev. Rul. 69-158 is superseded because the position stated therein is restated under the current law in this revenue ruling.