Rev. Rul. 54-67

Advice is requested whether a plan established by an employer which provides his employees only such benefits as are afforded through the purchase of ordinary life insurance contracts, which contracts are converted to life annuities at the normal retirement date, constitutes a "pension" plan within the meaning of section 165(a) of the Internal Revenue Code.

Section 165(a) of the Code provides in part as follows:

(a) EXEMPTION FROM TAX.--A trust forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall not be taxable under this supplement [Supplement E, Subchapter C of Chapter 1 of the Code.] * * *

The primary purpose of an ordinary life insurance contract is the providing of life insurance protection, and the reserve accumulated thereon is a result of premium payments being made on a level basis. Such a 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, it may not be said that a plan providing only for the purchase of ordinary life insurance contracts is primarily for the payment of definitely determinable benefits to employees over a period of years after retirement. (See Regulations 118, section 39.165-1(a)(2).)

Accordingly, it is held that such a plan does not qualify as a "pension" plan within the meaning of section 165(a) of the Code. Such a plan is to be distinguished from a plan which also provides incidental life insurance protection. (See Regulations 118, section 39.23(p)(1)(a).)