Rev. Rul. 81-34

The purpose of this revenue ruling is to restate Rev. Rul. 66-176, 1966-1 C.B. 85, under current law.

Rev. Rul. 66-176 deals with the qualification under section 401(a) of the Internal Revenue Code of an employee pension plan that contains the restrictions required by section 1.401-4(c)(2) of the Income Tax Regulations, but requires the plan to comply with such restrictions only when the employer gives notice of the plan administrator that such restrictions have or will become operative.

An employer established a pension plan for the benefit of its employees. The plan contains the restrictions required by section 1.401-4(c)(2) of the regulations that limit the amount of employer contributions that may be used for the benefit of the 25 highest paid employees in the event of early plan termination. The plan, however, requires that the employer give notice to the plan administrator when the restrictions have or will become operative. In the absence of such notification, no action will be taken with respect to the limitations on benefits set forth in the restrictions.

Section 1.401-4(c)(1) of the regulations provides that a pension plan upon its establishment must generally incorporate the restrictions provided in section 1.401-4(c)(2) of the regulations on the amount of employer contributions that may be used to fund benefits for the 25 highest paid employees in the event of early plan termination.

In the instant case, the plan contains such restrictions, but the restrictions become operative only when the employer gives notice to the plan administrator. Consequently, if the employer does not give such notice, the plan is, in effect, completely without such restrictions.

Accordingly, this plan fails to qualify under section 401(a) of the Code.

Rev. Rul. 66-176 is superseded because the position stated therein is restated under current law in this revenue ruling.