Rev. Rul. 61-157

                                SUMMARY

(a) BACKGROUND. - A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries constitutes a qualified trust under section 401(a) of the Internal Revenue Code of 1954 if it meets the further requirements set forth in such section as to contributions, nondiversion, coverage, and nondiscrimination in contributions or benefits. A qualified trust is exempt from tax under section 501(a) unless exemption is denied under section 502 because it is operated as a feeder organization, or under section 503 for having engaged in a prohibited transaction. An exempt trust, however, is subject to tax under section 511 on its unrelated business taxable income. Various tax benefits to employers, employees and their beneficiaries stem from an exempt trust. A trust, however, is not a prerequisite for such benefits. For example, deferment of tax and the long-term capital gain treatment are also provided for employees and their beneficiaries under section 403(a), and deductions for employer contributions are allowable under section 404(a)(2), in the case of nontrusteed annuity plans which meet the requirements of such sections, inclusive of the provisions under paragraphs (3) through (6) of section 401(a), relating to nondiscrimination.

(b) PURPOSE.-It is the purpose of this Revenue Ruling to bring up-to-date the guides which have been developed as a result of the determination of various issues relative to the qualification of plans and trusts, to correlate the rules which have been evolved with the applicable provisions of the Internal Revenue Code of 1954 and the corresponding Income Tax Regulations, and to codify various individual releases, except in cases where to do so would merely be repetitious or cumulative, and, in such cases, reference is made to the specific release in point. The issues presented are not all-inclusive but have been found to be present in many plans. It is contemplated that as new issues of general import arise additional releases will be issued. As to the effect of a new position on a case in which a ruling or determination letter had been issued see Revenue Ruling 54-172, C.B. 1954-1, 394, and P.S. No. 35 Revised, November 16, 1944.

(c) RULES PREVIOUSLY PROMULGATED.-Revenue Ruling 33, C.B. 1953-1, 267, sets forth rules which had been developed with respect to the qualification of plans under section 165(a) of the Internal Revenue Code of 1939, and Revenue Ruling 57-163 C.B. 1957-1, 128, contains guides for qualification of plans under section 401(a) of the Internal Revenue Code of 1954 as such guides were in effect on April 22, 1957, the date of publication of Internal Revenue Bulletin 1957-16 through which the Revenue Ruling was released. Certain parts of such rules had previously been modified by individual releases but, to the extent that inconsistencies still exist with the views here expressed, they are accordingly further modified.

(d) REFERENCES.-Certain issues are common to all types of plans while others are present only in particular categories, such as pension and annuity plans or profit-sharing and stock bonus plans. The various issues are discussed in their relationship to the applicable provisions of the Internal Revenue Code of 1954 and the corresponding regulations. Rulings listed in the appendix are incorporated by reference and made a part hereof, with appropriate modifications where necessary to conform with the Internal Revenue Code of 1954 and with this release. The omission of any rulings from the appendix is not to be construed as a revocation or modification of such rulings. Reference is made only to those rulings which are within the context of the particular guides considered. Rulings published in the Internal Revenue Bulletin are cited by specific reference. P.S. releases have also been made public although not published in the Bulletin. Copies are available in the Offices of District Directors of Internal Revenue and in the National Office in Washington. The present status of the respective releases is shown in the appendix.

PART 2. -- QUALIFIED PENSION, ANNUITY, PROFIT-SHARING, AND STOCK BONUS PLANS

SECTION 401(A) OF THE INTERNAL REVENUE CODE OF 1954-REGULATIONS SECTION 1.401-1

(a) APPLICABLE PLANS.-The provisions of section 401(a) are applicable only to trusteed pension, profit-sharing, and stock bonus plans, and only the requirements of paragraphs (3) through (6) of such section also apply to nontrusteed annuity plans. For definitions of plans of these types, see the Income Tax Regulations: section 1.401-1(b)(1)(i) for pension plans, section 1.401-1(b)(1)(ii) for profit-sharing plans, section 1.401-1(b)(1)(iii) for stock bonus plans, and section 1.404(a)-3(a) for annuity plans.

(b) DOMESTIC TRUST.-A qualified employees' trust must be organized or created in the United States and maintained at all times as a domestic trust. If, however, a foreign situs trust meets the requirements of section 401(a) in all other respects, employers making contributions thereunder are allowed deductions within the applicable limits, as provided for in section 404(a)(4), and beneficiaries of such trust are granted the same tax treatment, in accordance with section 402(c), as is applicable to beneficiaries of a domestic trust. It should be noted however that unless the nonresident alien individual is engaged in a trade or business in the United States or provision is otherwise made by treaty, the long-term capital gain treatment does not apply to distributions to such an individual and withholding of tax applies to the distributions under either a domestic or foreign situs trust. See sections 871 and 1441 of the Code and regulations thereunder.

(c) PLAN AND TRUST OF MULTIPLE EMPLOYERS.-A single plan and trust may be maintained by two or more employers, regardless of their affiliation, but each must meet all applicable requirements. See section 1.401-(d) of the regulations and P.S. No. 14, dated August 24, 1944. Where, under specified conditions, separate qualified and exempt trusts pool their funds in a group trust created to provide diversification of investments, the group trust may also be exempt and the status for exemption of the separate trusts will not be adversely affected. See Rev. Rul. 56-267, C.B. 1956-1, 206.

(d) LIFE INSURANCE BENEFITS.-A qualified plan may not provide only such benefits as are furnished through the purchase of ordinary life insurance contracts which may be converted to life annuities at the normal retirement date. See Rev. Rul. 54-67, C.B. 1954-1, 149. Life insurance protection may, however, be provided under a qualified plan provided that such protection is merely an incidental feature of the plan. In the case of a pension or annuity plan, the life insurance benefit is deemed to be incidental where the insurance protection is not greater than 100 times the monthly annuity, e.g., $1,000 of life insurance for each $10 of monthly annuity. See Rev. Rul. 60-83, C.B. 1960-1, 157. In the case of a profit-sharing plan which provides for the use of trust funds to purchase and pay premiums on ordinary life insurance contracts, the insurance feature is deemed to be incidental if: (1) the aggregate premiums for life insurance in the case of each participant is less than one-half of the aggregate of the contributions allocated to him at any particular time, and (2) the plan requires the trustee to convert the entire value of the life insurance contract at or before retirement into cash, or to provide periodic income so that no portion of such value may be used to continue life insurance protection beyond retirement, or to distribute the contract to the participant. See Rev. Rul. 54-51, C.B. 1954-1, 147, as amplified both by Rev. Rul. 57-213, C.B. 1957-1, 157, and Rev. Rul. 60-84, C.B. 1960-1, 159. Where life insurance benefits are applied to reduce employer contributions under a pension plan, amounts contributed by the employer for such insurance constitute-advance funding and are not currently deductible. See Rev. Rul. 55-748, C.B. 1955-2, 234.

(e) EMPLOYEE PARTICIPANTS.-A qualified plan must benefit employees or their beneficiaries exclusively. Such a plan cannot be maintained where there are no employees, active or retired, who are covered thereunder. See Rev. Rul. 55-629, C.B. 1955-2, 588. An arrangement does not qualify as a plan under section 401(a) if the benefits which it provides are not payable to an employee but only to his beneficiary upon his death. See Rev. Rul. 56-656, C.B. 1956-2, 280.

(1) Partners .-Partners are not employees and therefore are not eligible to participate in a qualified plan. See I.T. 3350, C.B. 1940-1, 64, and P.S. No. 23, dated September 2, 1944. Neither are they to be credited for services as partners prior to becoming employees in a successor corporation, either for prior service benefits or for meeting the eligibility requirements. See also Section 1361(d) of the Code which provides that a partner or proprietor of an unincorporated business enterprise electing to be taxed as a corporation shall not be considered an employee for the purpose of participating in a qualified plan.

(2) Associates .-Where an organization is classified as an association taxable as a corporation, and an employer-employee relationship exists between the association and the persons who are associates therein, such associates, if otherwise eligible, may be included in a plan which is intended to qualify under section 401(a) of the Code. The fact that an organization establishes a plan under section 401(a) is not determinative of whether such organization will be classified as a partnership or as an association taxable as a corporation. See Revenue Ruling 57-546, C.B. 1957-2, 886, modifying Revenue Ruling 56-23, C.B. 1956-1, 598. Rules for determining whether an organization is a trust, a partnership, or an association taxable as a corporation are set forth in the Regulations on Procedure and Administration pertaining to section 7701 of the Code. See T.D. 6503, C.B. 1960-2, 409. The pertinent provisions of these regulations relate generally to taxable years beginning after December 31, 1960.

(3) Stockholder participants. -Stockholders who are bona fide employees of a corporation may participate in the corporation's plan to the same extent as other employees. If, however, the plan is designed as a subterfuge for the distribution of profits to stockholders, it will not qualify as a plan for the exclusive benefit of employees. The plan must not be weighted in favor of stockholder-employees with respect to eligibility requirements or with respect to contributions or benefits. See section 1.401-1(b)(3) of the Income Tax Regulations and I.T. 4020, C.B. 1950-2, 61.

(4) Attorneys and other practitioners .-An attorney, or other professional person, may be a bona fide employee, and, as such, eligible to participate in a qualified plan. The mere fact that a professional person has an independent income from the practice of his profession will not necessarily preclude him from participating in such a plan. He must, however, be an employee for all purposes, including coverage as an employee for social security or a similar public program, if applicable to other employees, and for income tax withholding purposes. Thus, if his actual employment for such purposes commences as of a certain date, he is not to be credited for services prior thereto, such as, for example, for the purposes of meeting the years of service requirements to be eligible to participate in the plan or to obtain benefits based on past services.

(5) Insurance agents .-Section 7701(a)(20) of the Code provides that for the purpose of contributions to, and distributions from, a stock bonus, pension, or profit-sharing plan or trust, or under an annuity plan, the term `employee' shall include a full-time life insurance salesman who is considered an employee for the purpose of the Federal Insurance Contributions Act, or in the case of services performed before January 1, 1951, who would be considered an employee if his services were performed during 1951. Thus, the same rules apply with respect to treating full-time life insurance salesmen as employees for inclusion in a qualified plan as are applicable to the tax treatment for old-age, survivors, and disability insurance purposes. This inclusion does not, however, extend to insurance brokers and others who are not full-time life insurance agents within the purview of section 3121(d)(3)(B) of the Code.

(f) FUNDED PLAN.-A qualified plan must be a funded plan. Contributions are made either to a trust or paid as premiums under insurance contracts. In pursuance with an established funding method, however, employer contributions may be deferred. Thus, a qualified pension plan may provide that current contributions be made by employees only, but that the employer is obligated to pay the full amount of the stipulated retirement benefits to each retired employee-participant after the funds in the trust forming a part of such plan have been fully exhausted. See Rev. Rul. 54-152, C.B. 1954-1, 149. However, see part 5(f).

(g) UNRELATED BENEFITS.-A qualified pension plan does not provide for the payment of benefits not customarily included in that type of plan, such as layoff benefits or benefits for sickness, accident, hospitalization, or medical expenses. See the last sentence of section 1.401-1(b)(1)(i) of the regulations. The annuity portion of a contract with an insurance company by means of which an employees' nontrusteed annuity plan is funded may, however, if otherwise satisfactory, meet the applicable requirements for qualification even though the contract also provides separate group term life insurance and accident and health insurance. See Rev. Rul. 56-633, C.B. 1956-2, 279.

(h) PLAN OF DEFERRED COMPENSATION.-A qualified plan is a plan of deferred compensation. A pension plan provides systematically for the payment of definitely determinable benefits to employees over a period of years, usually for life, after retirement. A profit-sharing plan must provide a definite predetermined formula for allocating contributions among participants and for distributing the accumulated funds after a fixed number of years, the attainment of a stated age, or upon the prior occurence of some event such as layoff, illness, disability, retirement, death, or severance of employment. The term `fixed number of years' is considered to mean at least two years. See Rev. Rul. 54-231, C.B. 1954-1, 150. A stock bonus plan is similar to a profit-sharing plan except that the contributions by the employer are not necessarily dependent upon profits and the benefits are distributable in stock of the employer company. See section 1.401-1(b)(1)(iii) of the regulations.

(i) EMPLOYEE WITHDRAWALS UNDER A PENSION PLAN.-A qualified pension plan may provide for the payment of benefits, such as disability and death benefits, prior to normal retirement if such benefits are only incidental to the main purpose of the plan. Restrictions and limitations, however, apply to the withdrawal of funds by employees in times of financial need or otherwise.

(1) Funds consisting of employer contributions or increments .-A pension plan must not permit participants, prior to any severance of employment or the termination of the plan, to withdraw all or a part of the funds accumulated on their behalf consisting of employer contributions or increments. A similar provision in a profit-sharing plan, however, may, under appropriate circumstances be acceptable. See Rev. Rul. 56-693, C.B. 1956-2, 282, modified by Rev. Rul. 60-323, C.B. 1960-2, 148.

(2) Discontinuance of participation .-Upon discontinuance of his participation under a pension plan an employee may be permitted to withdraw his own contributions together with an amount which represents the increments actually earned thereon, but not an amount in excess of such earnings. See Rev. Rul. 60-281, C.B. 1960-2, 146.

(3) Employee voluntary contributions .-A pension plan may provide for the withdrawals by participants of their voluntary contributions which are made in addition to compulsory contributions, where such withdrawals do not affect a member's participation in the plan, the employer's past or future contributions on his behalf, the basic benefits provided by both the participant's and employer's nonwithdrawable contributions, and no interest is allowed on contributions withdrawn either at the time of withdrawal or in computing benefits on retirement. See Rev. Rul. 60-323, C.B. 1960-2, 148.

(4) Conversion of contributory to noncontributory plan .-Where a contributory pension plan is amended to provide for employer contributions only, provision may be made for a refund of employee contributions if discrimination does not result in favor of employees who are officers, shareholders, supervisors, or highly compensated. See Rev. Rul. 61-79, C.B. 1961-1, 138.

(j) WRITTEN PROGRAM.-A qualified plan must be a definite written program setting forth all provisions essential for qualification. See section 1.401-1(a)(2) of the regulations. In the case of a trusteed plan, there must be a valid existing trust, complete in all respects and recognized as such under the applicable local law, pursuant to a plan in effect, except that in the case of a trust of an employer on the accrual basis, if only the trust corpus in lacking at the close of the first taxable year, it may be furnished no later than the due date of the employer's return, plus extensions of time in which to file. See Mim. 5985, C.B. 1946-1, 72, as modified by Rev. Rul. 57-419, C.B. 1957-2, 264. The trust must be evidenced by an executed written document setting forth the terms thereof. See Mim. 6394, C.B. 1949-1, 118, and Rev. Rul. 56-673, C.B. 1956-2, 281. In the case of a nontrusteed annuity plan which is evidenced only by contracts with an insurance company, the plan is not in effect until such contracts are executed and issued. Where, however, the plan is separate and apart from a group annuity contract, or annuity contracts, the plan may be in effect before the close of the first taxable year where appropriate steps are taken to establish the plan, and the insurance contracts have been applied for, the application has been accepted by the insurance company, the contracts or abstracts have been prepared in sufficient detail defining all terms, at least a part payment of the premiums due has been irrevocably made, and the plan has been communicated to employees. See Rev. Rul. 59-402, C.B. 1959-2, 122, modifying Mim. 6020, C.B. 1946-1, 74.

(k) COMMUNICATION TO EMPLOYEES.-Employees are to be apprised of the establishment of a qualified plan and the salient provisions thereof. The most effective way of doing so is to furnish each employee with a copy of the plan. Where this is not feasible, however, various substitutes may be used. It will be sufficient that a booklet summarizing the plan in all its essential features be furnished the employees, or that a notice be posted on the company's bulletin board, which must be in conspicuous view, stating that a plan has been established, setting forth the type thereof, specifying the eligibility requirements, containing a synopsis of all benefits provided thereunder, indicating whether employees are to contribute and, if so, the amount or rate of contributions, and defining the vesting provisions, and, in the case of a profit-sharing or stock bonus plan, setting forth the employer contribution commitment, if any. In all cases of substitutes for furnishing employees with copies of the plan, the medium used must apprise the employees that a copy of the complete plan may be inspected at a designated place on the company's premises during stated times.

(1) PROFIT-SHARING AND STOCK BONUS PLANS OF AFFILIATED COMPANIES.-In the case of a profit-sharing plan, or a stock bonus plan in which contributions are determined with references to profits, of an affiliated group of corporations within the purview of section 1504 of the Code, contributions may be made by other members of the group for the benefit of employees of a corporation which is prevented from making a contribution because it lacks, or has insufficient, current or accumulated earnings or profits, to the extent and in the manner provided in section 404(a)(3)(B) of the Code and section 1.404(a)-10 of the regulations.

(m) FEEDER PLAN.-A stock bonus or profit-sharing plan which provides that the funds therein may be used to meet the costs of a pension or annuity plan operated concurrently and covering the same employees, if and when the employer suspends contributions to the latter plan, is generally called a `feeder' plan and, as such, does not qualify because it relieves the employer from contributing to the pension or annuity plan and is, therefore, not for the exclusive benefit of the employees or their beneficiaries. See section 1.401-1(b)(3) of the regulations. An employee who has a vested right under a stock bonus or profit-sharing plan may, however, if the plan so provides, authorize a transfer of all or a part of his vested interest in order to make up a deficiency in the employer's contribution under a pension or annuity plan. In such case, the amount transferred is includible in the employee's gross income as though a distribution of such interest had been made. See P.S. No. 37, dated October 7, 1944. It should also be observed that a feeder plan is different from a feeder organization. As to the latter, see paragraph (r)(4) hereof and section 502 of the Code which denies exemption under section 501 to an organization which is operated for the primary purpose of carrying on a trade or business for profit even though all of its profits are payable to one or more organizations exempt under section 501.

(n) DEFINITELY DETERMINABLE BENEFITS.-Benefits under a qualified pension plan must be definitely determinable. See section 1.401-1(b)(1)(i) of the regulations. Benefits are not definitely determinable if they may be suspended after retirement without cause. The plan may provide, however, that benefits shall be suspended for any period of time during which primary insurance benefits under the Federal Social Security Act are discontinued because of employment after retirement date. See Rev. Rul. 82, C.B. 1953-1, 288. Benefits which very with the increase or decrease in the market value of the assets from which such benefits are payable, or which vary with the fluctuation of a specified and generally recognized cost-of-living index, are consistent with a plan providing for definitely determinable benefits. See Rev. Rul. 185, C.B. 1953-2, 202.

(o) CONTINGENCY OR SURPLUS RESERVE.-The practice of contributing the full amount of annual premiums under an insured pension plan, without reduction for accumulated dividends and regardless of the amount of the allowable deduction limitation, would result in the creation of a contingency or surplus reserve. If a significant part of a trust fund consists of such a contingency or surplus reserve, the plan's qualification could be adversely affected. If the advance funding, however, is minor in relation to the actuarial liability under the plan, if there is no possibility of the reversion of a substantial amount to the employer on termination of the plan, and if the advance funding is exclusively for the benefit of the employees or their beneficiaries, such advance funding would not adversely affect the qualification of the plan. Advance funding does not constitute a current deduction. Accordingly, the deduction otherwise allowable to the employer for any taxable year, under section 404(a) of the Code, must be reduced by the amount of dividends earned, and interest credited on accumulations thereof, in the current or next preceding taxable year. See Rev. Rul. 60-33, C.B. 1960-1, 152.

(p) PERMANENCY.-A qualified plan is a permanent and continuing program. A plan which is set up during years of high tax rates and is abandoned within a few years without a valid business reason when profits fall off does not satisfy this requirement. Also, especially in the case of a pension plan under which benefits are funded at a higher rate for employees in whose favor discrimination is prohibited than for other employees, if the plan is discontinued before ample provision is made for comparable benefits for such other employees, it will be deemed not to have been a bona fide program for the exclusive benefit of employees in general from its inception. In the case of a profit-sharing plan, merely making a single or occasional contribution out of profits for employees does not satisfy the requirement for permanency. There must be recurring and substantial contributions. See section 1.401-1( b)(2) of the regulations. For a more detailed discussion of the applicable principles and illustrative cases, see Mim. No. 6136, C.B. 1947-1, 58, as modified by Rev. Rul. 55-60, C.B. 1955-1, 37. See also Exhibit `A' of Rev. Proc. 56-12, C.B. 1956-1, 1029, for information to be filed for a determination as to the effect of a curtailment or termination of a plan on its prior qualification; P.S. No. 56, dated June 27, 1946, as to notice by the trustee on termination of a plan; P.S. No. 57, dated August 5, 1946, as modified by Rev. Rul. 56-596, C.B. 1956-2, 288, as to the effect of a suspension of contributions; and P.S. Nos. 64 and 67, dated November 9, 1950, and April 26, 1951, respectively, and Rev. Rul. 55-681, C.B. 1955-2, 585, as to union negotiated plans. A qualified profit-sharing plan may, under appropriate circumstances, provide that an employee may elect each year to participate in the trust forming a part of such plan or to accept his share in cash. See, however, parts 4(d) and 5(a) hereof as to meeting the requirements for coverage and nondiscrimination in contributions or benefits. A profit-sharing plan which does not contain a definite contribution formula may qualify if all other applicable requirements are met. See section 1.401-1(b)(1)(ii) of the regulations and Rev. Proc. 56-22, C.B. 1956-2, 1380.

(q) DESIGNATION OF BENEFICIARIES.-Beneficiaries of employees under a qualified plan may be designated by the respective participants without restriction, or they may be restricted under the plan to specified persons, or to a group of persons, who are the natural objects of the employee's bounty, his estate, or his dependents. See Rev. Rul. 54-398, C.B. 1954-2, 239.

(r) INVESTMENT OF TRUST FUNDS.-Investments of an exempt employees' trust are subject to the following: (1) As a function of a trust which under section 401(a) of the Code, is part of a plan of an employer for the exclusive benefit of his employees or their beneficiaries, the investments must be consistent with such purpose. (2) They must not constitute prohibited transactions, as defined under section 503. (3) Investments which result in unrelated business taxable income subject the trust to tax under section 511 on such income. (4) They must not be used to operate a feeder organization.

(1) Exclusive benefit requirement .-The primary purpose of benefiting employees or their beneficiaries must be maintained with respect to investments of trust funds as well as in other activities of the trust. This requirement, however, does not prevent others from also deriving some benefit from a transaction with the trust. For example, a sale of securities to the trust at a profit benefits the vendor, but if the purchase price is not in excess of the fair market value of the securities and the applicable investment requisites have been met, the transaction is consisting with the requirement of benefiting employees or their beneficiaries. These requisites are: (1) the cost must not exceed fair market value at the time of purchase, (2) a fair return commensurate with the prevailing rate must be provided, (3) sufficient liquidity is to be maintained so as to permit distributions in accordance with the terms of the plan, and (4) the safeguards and diversity that a prudent investor would look to are to exist. Upon compliance with these requisites, if the trust instrument and local law permit investments in the stock or securities of the employer, such investments would be deemed consistent with the purposes of section 401(a). The District Director, however, is to be notified if stock or securities of the employer is acquired by the trust so that a determination may be made whether the trust serves any purpose other than constituting part of a plan for the exclusive benefit of employees. See section 1.401-1(b)(5)(ii) of the regulations. Such notification is to be made as part of the annual information return, Form 990-P, unless an advance determination letter is requested and, if so, at the time of making a request to the appropriate District Director of Internal Revenue for such letter. The notification is to include the information called for in Exhibit `B', or Exhibit `B-1', in the alternative, of Revenue Procedure 56-12, C.B. 1956-1, 1029, and certified to by the accounting or other responsible officer.

(2) Prohibited transactons .-Exemption will be denied to an employees' trust which engages in a prohibited transaction within the purview of section 503 of the Code. Transactions with the employer-grantor of the trust, or related or affiliated interests, which are prohibited are set forth in section 503(c). Special rules, however, apply to the requirement for adequate security in the case of obligations which are acquired by the trust under the conditions of section 503(h), and in the case of loans to employers in the unincorporated stock brokerage business in compliance with the requirements of section 503(i).

(3) Unrelated business income .-An exempt employees' trust is taxable under section 511 of the Code on its unrelated business taxable income, as defined in section 512, which is derived from any unrelated trade or business, as defined in section 513. Special rules are set forth in section 514 with respect to business leases. If business lease indebtedness is incurred, rental income is includible in gross income in the ratio that the business lease indebtedness, at the close of the taxable year, bears to the adjusted basis of the property at such time.

(4) Feeder organizations .-An employees' trust which is operated for the primary purpose of carrying on a trade or business for profit is denied exemption under section 502 of the Code, even though all of its profits are payable to one or more exempt organizations.

(s) VALUATION OF SECURITIES ON INVENTORY DATE.-Any type of qualified plan which provides for distributions in accordance with amounts stated or ascertainable, credited to participants, as in the case of profit-sharing, stock bonus, and trusteed pension plans of the money-purchase type, must provide for a valuation of securities held by the trust, at least once a year, on a specified inventory date, in accordance with a method consistently followed and uniformly applied. The fair market value on the inventory date is to be used for this purpose. The respective accounts of participants are to be adjusted in accordance with the valuation. For example, if as a result of a valuation on the inventory date, John Doe's account, which previously showed a balance of $1,000, is to be increased by one-tenth of one percent of the increase in the value of the trust assets, and such increase is $50,000, his interest is to be increased by $50.

(t) ALLOCATION OF STOCK BONUS AND PROFIT-SHARING FUNDS.-All funds in an exempt stock bonus or profit-sharing trust must be allocated to participants in accordance with a definite formula. Thus, no reserves are to be provided by withholding allocations from participants. If suspense accounts are maintained, provision is to be made for ascertaining the respective shares of participants in such accounts and such shares are to be included in the distribution.

PART 3. -- IMPOSSIBILITY OF DIVERSION UNDER THE TRUST INSTRUMENT

SECTION 401(a)(2) OF THE INTERNAL REVENUE CODE OF 1954-REGULATIONS SECTION 1.401-2

(a) TRUST INSTRUMENT MUST MAKE PROHIBITED DIVERSION IMPOSSIBLE.-Section 401(a)(2) of the Code requires that under the trust instrument it must be impossible `* * * at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of * * * employees or their beneficiaries * * *.' The term `trust instrument' means a written document. Although an oral trust may be recognized under the applicable local law, section 401(a)(2) requires the trust instrument to make the prohibited diversion impossible. The trust instrument must definitely and affirmatively make it impossible for the nonexempt use or diversion to occur. See section 1.401-2(a)(2) of the regulations. The trust must also constitute a valid trust under the law in the jurisdiction to which it is subject. See Mim. 6394, C.B. 1949-1, 118; also Mim. 5985, C.B. 1946-1, 72, as modified by Rev. Rul. 57-419, C.B. 1957-2, 264.

(b) PAYMENT OF EMPLOYER'S CLAIMS.-A qualified trust may contain a spendthrift clause precluding the use of trust funds for the payment of debts or other obligations of participants and preventing a sale, transfer, or assignment of a participant's interest. It may, however, limit such prohibition so as not to be applicable to indebtedness due the employer. The repayment of a loan owing by an employee is for the economic benefit of the employee since it relieves him of a liability. If a trust did not contain a spendthrift clause so that an employee's creditors could reach his interest, the fund would still be for the exclusive benefit of the employees. Accordingly, the mere fact that the employer is the only one who has that right does not change the result. See Rev. Rul. 56-432, C.B. 1956-2, 284.

(c) CONDITIONAL PAYMENTS.-A provision in a newly established plan for the return of employer contributions only in the event that the Commissioner of Internal Revenue rules that the plan is not qualified does not, of itself, prevent qualification of the plan and exemption of the trust. The plan must be in full force and effect, and the non-reversionary provisions must otherwise prevent the nonexempt use of the funds. It is only by the Commissioner's determination that the plan does not qualify that a recovery of employer contributions made prior to such determination is possible. Under such circumstances, the conditional payment, and the provision therefor, are held not to prevent qualification of the plan and exemption of the trust. See Rev. Rul. 60-276, C.B. 1960-2, 150.

(d) ERRONEOUS ACTUARIAL COMPUTATION.-Trust funds must not be used for purposes other than for the exclusive benefit of employees or their beneficiaries prior to the termination of the trust and the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, and, only then, may recovery be had in the case of a pension trust to the extent of any surplus existing because of an actuarial error. In determining whether any surplus exists on termination of a trust, and the amount thereof, all liabilities, contingent as well as fixed, with respect to employees and their beneficiaries under the trust must be taken into account. Fixed liabilities are the amounts required to provide the benefits payable to those who have become entitled to them. Contingent liabilities are the benefit credits accrued up to the time of termination of the trust for employees (and their beneficiaries) who might have become entitled to benefits if the trust had been continued indefinitely. If such liabilities are to be discharged by commuting the payments (other than through the purchase of insurance company contracts), the value thereof at the time of termination of the trust must be determined for this purpose by use of assumptions no less conservative in any respect than were used in determining costs during the previous life of the trust, and no discount for severances other than death may be assumed.

(e) NO REVERSION IN PROFIT-SHARING OR STOCK BONUS PLANS.-Allocations under profit-sharing and stock bonus plans are not predicated upon amounts actuarially necessary to provide stipulated retirement benefits. See I.T. 3660, C.B. 1944, 136. See also section 1.401-1(b)(1)(i) of the regulations to the effect that a plan designed to provide benefits for employees or their beneficiaries to be paid upon retirement or over a period of years after retirement will, for the purposes of section 401(a) of the Code, be considered a pension plan if the employer contributions under the plan can be determined actuarily on the basis of definitely determinable benefits, or, as in the case of money purchase pension plans, such contributions are fixed without being geared to profits. Consequently, in profit-sharing and stock bonus plans there can be no reversion of any kind since such plans do not provide benefits which are predicated on actuarial assumptions or computations.

(f) APPLICATION OF DIVIDENDS AND OTHER CREDITS UNDER GROUP ANNUITY CONTRACTS.-Provisions analogous to that set forth in section 401(a)(2) of the Code, prohibiting diversion of funds from exempt trusts, are contained in section 404(a)(2), relating to deductions of contributions under nontrusteed annuity plans, and in section 403(a)(2)(A)(ii), relating to the capital gains treatment for certain distributions under nontrusteed annuity plans. Section 404(a)(2), for example, requires that, where retirement annuities are purchased, refunds of premiums, if any, must be applied within the current taxable year or next succeeding taxable year towards the purchase of such retirement annuities. To satisfy this requirement, there must be a definite written arrangement between the employer and the insurer, either as part of the annuity contract or by separate written direction from the employer to the insurer, or partly in one form and partly in the other, providing that:

(1) Restriction on payment of credits or returns to employer .-No credits or returns, other than those arising from corrections of errors in records or computations, such as misstated ages or similar corrections, may be paid to the employer prior to permanent discontinuance of contributions.

(2) Application of dividends or other returns or credits .-All dividends, experience rating credits, or employer surrender or cancellation credits ascertained prior to permanent discontinuance or contributions are to be applied regularly as they are determined toward the premiums next due for purchase of annuities under the plan before any further employer contributions are so applied.

(3) Surrender or cancellation credits after discontinuance of plan .-If surrender or cancellation credits may be made after discontinuance of the plan but before all retirement annuities with respect to service prior to discontinuance of the plan have been purchased, such credits will be applied regularly as they are determined to purchase such retirement annuities by a procedure which does not contravene the conditions of section 401(a)(4).

(4) Dividends or experience credits after discontinuance of contributions .-Any dividends or experience credits similar to dividends made after permanent discontinuance of contributions, or any surrender or cancellation credits made after permanent discontinuance of contributions and after all retirement annuities with respect to service prior to discontinuance of the plan have been purchased, may be paid to the employer provided they are paid as nearly as practicable as they are determined so that no substantial accumulation results. (It may be noted that this possibility of return to the employer after discontinuance is analogous to the provision permitting return to the employer, on termination of an exempt pension trust of any surplus arising from erroneous actuarial computations.)

PART 4. -- REQUIREMENTS AS TO COVERAGE

SECTION 401(A)(3)(A) AND (B), (5), AND (6) OF THE INTERNAL REVENUE CODE OF 1954-REGULATIONS SECTION 1.401-3

(a) PLAN MUST BENEFIT EMPLOYEES IN GENERAL.-Section 401(a)(3) of the Code permits an employer to designate several pension, stock bonus, profit-sharing, and annuity plans as constituting parts of a plan which he intends to qualify under such section. If all of the plans so designated cover a sufficient portion of all employees, there is no requirement that a definite proportion of the employees be included in any one plan. The plan, or plans, must benefit employees in general and, towards this end, must cover either a number which is at least equal to that determined under the percentage provisions of section 401(a)(3)(A), or such employees as qualify under a nondiscriminatory classification within the purview of section 401(a)(3)(B). A plan will not necessarily fail of qualification merely because it covers only the employer's one employee, provided, however, that it is not designed, or operated, as a means of siphoning profits to a shareholder-employee or otherwise limiting participation to an employee of a class in whose favor discrimination is prohibited under section 401(a)(3)(B) and (4). See Rev. Rul. 55-81, C.B. 1955-1, 392.

(b) PERCENTAGE COVERAGE REQUIREMENTS.-The percentage coverage requirements of section 401(a)(3)(A) of the Code may be met by including in the plan a number of employees at least equal to that determined by applying either of the alternative percentage provisions. The percentages are applied after excluding certain short service, seasonal, and part-time employees. For example, if out of a total of 1,200 employees, 100 have less than three years of service (the minimum period prescribed by the plan), 25 do not customarily work for more than 20 hours in any one week, and 75 are employees whose customary employment is for not more than five months in any calendar year, the percentages are applied to the balance of 1,000. The alternative percentage provisions are:

1. Seventy percent or more of all employees (70%of 1,000 in the above example) must be covered under the plan.

2. Seventy percent or more of all employees (70%of 1,000 in the above example) must be eligible to benefit under the plan, and, if so, at least 80 percent of all eligible employees must actually be covered.

Under the first alternative, on the basis of the figures used, if at least 700 employees are covered, the requirements of section 401(a)(3)(A) are satisfied. Under the second alternative, on the same basis, 700 or more employees must be eligible to participate and at least 80 percent of those eligible must actually participate. For example, if employees are also required to contribute five percent of compensation in order to participate, and, say, 750 of them are eligible to do so, then if at least 600 actually do contribute and are covered under the plan, the requirements of section 401(a)(3)(A) are also met.

(c) CLASSIFICATION OF EMPLOYEES.-In lieu of meeting the percentage requirements of section 401(a)(3)(A) of the Code, an employer may set up a classification of employees which, if found by the Commissioner of Internal Revenue not to discriminate in favor of officers, shareholders, supervisors, or highly compensated employees, will satisfy the requirements of section 401(a)(3)(B). Under such section, plans may qualify which are limited to employees who are within a prescribed age group, have been employed for a stated number of years, have been employed in certain designated departments, or are in other classifications, provided that the effect of covering only such employees does not discriminate in favor of employees within the enumerations with respect to which discrimination is prohibited. See section 1.401-3(d) of the regulations.

(d) IMMEDIATE AND DEFERRED PROFIT-SHARING PLANS.-A profit-sharing plan which is qualified under section 401(a) of the Code is a plan of deferred compensation and, as such, provides for distributing the funds accumulated thereunder after a fixed number of years, the attainment of a stated age, or upon the prior occurrence of some event such as illness, disability, retirement, death, layoff, or severance of employment. Thus, employees who receive the amounts allocated to their accounts before the expiration of such period of time or the occurrence of such contingency are not considered covered under the plan for the purposes of section 401(a)(3)(A) and (B). See section 1.401-3(c) of the regulations. If the employee has a right of election to receive his share of the profits in cash or to have it deferred through payment into a trust for his benefit, qualification of the plan is made by reference only to those employees who participate in the trust. See Rev. Rul. 56-497, C.B. 1956-2, 284.

(e) DIFFERENT ELIGIBILITY REQUIREMENTS FOR PRESENT AND FUTURE EMPLOYEES.-A provision for different eligibility requirements for present and future employees is not necessarily discriminatory within the purview of section 401(a)(3)(B) of the Code. If present employees who are officers, shareholders, supervisors, or highly compensated can meet the requirements for new employees there is no objection to the dual requirements. For example, if all present employees regardless of age are eligible and only those new employees who are at least 30 years old may participate, but all present employees who fall within one or more of the categories enumerated in section 401(a)(3)(B) are at least 30 years of age, the eligibility provision is not objectionable, even though there are other present employees who are under 30 years of age. Similarly, if all present employees are eligible regardless of years of service but only those future employees who will complete five years of service will be eligible, but all present employees who are officers, shareholders, supervisors, or highly compensated have at least five years of service, although there are other present employees who have less than five years, the eligibility provision is acceptable. If however, in the above illustrations, there are employees within the enumerated categories who are under 30 years of age or have less than five years of service, the prohibited discrimination is likely to arise in operation when new employees are added, and, therefore, in such a case such a provision would not be acceptable as a basis for a favorable advance ruling.

(f) CONTINUING PARTICIPATION IN THE EVENT OF LEAVE OF ABSENCE.-Plans may provide for continued participation in the event of leave of absence for a specified purpose, such as service in the Armed Forces, sickness, or disability. All participants under similar circumstances, however, must be treated alike.

(g) BURDENSOME CONTRIBUTIONS.-Section 1.401-3(d) of the regulations provides in part: `* * * if a contributory plan is offered to all of the employees, but the contributions required of the employee participants are so burdensome as to make the plan acceptable only to the highly paid employees, the classification will be considered discriminatory in favor of such highly paid employees.' For example, if the plan requires employee contributions of ten percent of compensation, it will be necessary to determine whether lower paid employees are kept out of the plan because of such requirement. If it is found that lower paid employees are not participating because of the contribution requirement, the classification may be held to discriminate in favor of group enumerated in section 401(a)(3)(B) and (4) of the Code. As a general rule, however, employee contributions of six percent or less are not deemed to be burdensome. In cases where the plan provides for optional rates of contribution by employees, and employer contributions or the benefits are geared to the employee contributions in such a way that a higher rate of employee contributions will result in larger benefits from employer contributions, the employee contributions may similarly be found to be burdensome and result in discrimination in contributions or benefits in contravention of section 401(a)(4), but generally only if the highest rate of employee contribution permitted in excess of six percent of compensation. The test is whether the contribution provisions operate to deprive lower paid employees of benefits at least as high in proportion to compensation as are provided for higher paid employees, after taking into account differentials permitted under the requirements for integration with social security benefits. See subparagraph (j) below.

(h) VOLUNTARY CONTRIBUTIONS.-Where employees are permitted to make voluntary contributions to which employer contributions are not geared, a potential disproportionate allocation of employer contributions is not present. Such voluntary contributions, however, must be kept within reasonable bounds. Accordingly, provision may be made for voluntary employee contributions of amounts up to 10 percent of compensation, provided that employer contributions, or the benefits derived therefrom, are not geared to employee contributions which must be used to provide additional benefits only for the individual contributing employees. See Rev. Rul. 59-185, C.B. 1959-1, 86.

(i) CLASSIFICATION WITHIN PURVIEW OF STATUTE BUT DISCRIMINATORY IN OPERATION.-A classification may appear to be satisfactory on paper but if in actual operation of the plan it discriminates in favor of employees who are highly compensated, etc., the plan will fail of qualification. For example, a plan ostensibly covers all employees regardless of service but nonforfeitable rights are provided only for those who have at least 15 years of service and stay on until normal retirement age 65. Except for a handful of executives who are shareholders and officers, employees are migratory workers who stay on a job for a relatively short time and then move elsewhere. Although the coverage provisions on paper seem satisfactory, in actual operation only the executive employees will benefit. Accordingly, both paragraphs (3)(B) and (4) of section 401(a) of the Code are considered together in determining whether the requirements of each is met. It is possible in the illustration used that the plan may qualify if satisfactory provisions for vesting are incorporated therein. See part 5(c) hereof. In the case of a profit-sharing plan under which employees may elect to receive their shares in cash or to participate in a trust, the trust must include enough lower paid employees to demonstrate that in the operation of the plan there is no discrimination in favor of higher and employees. See Rev. Rul. 56-497.

(j) INTEGRATION.-Plans which exclude employees who earn less than a specified amount or provide proportionately lesser benefits for such employees may qualify if the benefits under the plan integrate with those provided under the social security or similar (e.g., Railroad Retirement Act) program. The total benefits, inclusive of those under the social security or similar program, are used for comparative purposes. If a plan is properly integrated, a classification which excludes all employees who are compensated below the compensation level used for integration purposes will not be considered discriminatory solely because the contributions or benefits based on that part of excluded remuneration differ from contributions or benefits based on that part of remuneration which is not so excluded.

(1) Integration rules .-The rules for integrating benefits under a plan with those provided under the Social Security Act, prior to the 1950 amendments, are set forth in Commissioner's Mimegraph 5539, C.B. 1943, 499. Supporting rulings under that mimegraph are contained in I.T.'s 3613, 3614, and 3615, that mimeograph are contained respectively, and in P.S. Nos. 5, 13, and 30, dated July 29, 1944, August 24, 1944, and September 16, 1944, respectively. Rules as to integration of deferred benefit plans of employers with the old-age and survivors insurance benefits provided by the Social Security Act Amendment of 1950 are contained in Mimeograph 6641, C.B. 1951-1, 41, and the modification effected as a result of amendments to the Social Security Act by Public Law 590, 82d Congress, 2d Session approved July 18, 1952, are set forth in Revenue Ruling 13, C.B. 1953-1, 294. P.S. No. 34, dated September 23, 1944, sets forth the rules applicable to integrating benefits under a plan with those under the Railroad Retirement Act, as in effect as of September 23, 1944, and Revenue Ruling 12, C.B. 1953-1, 290, prescribed the applicable integration rules as effected by amendments to the Railroad Retirement Act through October 1951. Section 1.401-3(e) of the regulations prior to amendment by T.D. 6447, C.B. 1960-1, 163, established the general basis for integrating pension, annuity, profit-sharing, and stock bonus plans which limit coverage to employees earning in excess of $4,200 a year, or which base contributions or benefits only on compensation in excess of that amount, with the benefits provided by the Social Security Act as amended through 1956. Revenue Ruling 56-692, C.B. 1956-2, 287, extends the provisions of Mimeograph 6641, except paragraphs 11 and 15 thereof, to plans which are integrated at $4,200 a year and gives effect to the more liberal definition of `average annual compensation,' as provided by section 1.401-3(e)(2)(i) of the regulations, prior to amendment by T.D. 6447. Such Treasury Decision, however, sets forth the general basis for integration of pension, annuity, profit-sharing, and stock bonus plans which limit coverage to employees earning in excess of $4,800 a year, or which base contributions or benefits only on compensation in excess of that amount, with benefits provided by the Social Security Act, as amended through 1958. Revenue Ruling 61-75, C.B. 1961-1, 140, contains guides for determining whether a plan is integrated with benefits under the Social Security Act as so amended, and modifies Mimeograph 6641 and Revenue Ruling 13.

(2) Death benefits under prior integration rules .-For the rules applicable to plans providing death benefits and integrated under Mimeograph 5539, see Revenue Ruling 57-163, Part 4(i)(2), C.B. 1957-1, 128, at 143.

(k) LIMITATION ON EXCESS TRUST EARNINGS CREDITS UNDER INTEGRATED PLANS.-A trusteed pension plan which covers only employees earning in excess of a specified amount, or under which benefits are offset by all or part of the primary social security benefit, will not meet the integration requirements if it contains no limitation on the amount of excess earnings of the trust which may be credited to a participant's account. Where a plan provides that actual trust earnings age to be credited proportionately to the individual accounts of participants, regardless of whether such earnings are greater or less than the assumed rate, the result may be that employees will benefit to an extent in excess of the permissible limit for integration purposes. Hence, such a provision is not acceptable. The plan may meet the integration requirements, however, if it is amended to include limits insuring that the crediting of the excess earnings will not cause the actual benefits to exceed the integration limits. Any excess earnings which, in any year, cannot be credited to a participant's account because of such limitation, is to be used to reduce the employer's contribution for that year. As an alternative, however, the plan may provide that excess earnings will be allocated on a basis which does not involve integration, e.g., allocating excess earnings in proportion to compensation, or total compensation since becoming a participant. See Rev. Rul. 60-337, C.B. 1960-2, 151.

(1) COVERAGE LIMITED TO EMPLOYEES EXEMPT FROM OVERTIME PAY PROVISIONS OF THE FAIR LABOR STANDARDS ACT.-A classification which consists only of such employees who are exempt from the overtime provisions of the Fair Labor Standards Act is not automatically nondiscriminatory. Such a classification may, however, be acceptable in a particular case if it either includes enough employees to satisfy the percentage coverage requirements or if it in fact does not discriminate in favor of employees within the enumerations with respect to which discrimination is prohibited. Section 13(a)(1) of the Fair Labor Standards Act provides that the overtime pay provisions shall not apply to any employee who is employed in a bona fide executive, administrative, professional, or local retailing capacity, or in the capacity of outside salesman, as such terms are defined and delineated by regulations of the Wage and Hour Division of the Department of Labor. These regulations prescribe minimum compensation levels for employees within the prescribed categories. Hence, a plan covering only such employees which has the effect of covering substantially only salaried and clerical employees earning above a certain minimum compensation level must satisfy the integration requirements in order to qualify. See subpart (j) hereof. Furthermore, the classification may be found to be discriminatory if it consists primarily of employees who are officers, shareholders, supervisors, or highly compensated, or if there are relatively many salaried or clerical employees earning in excess of the specified compensation levels who are not exempt from the overtime provisions of the Fair Labor Standards Act and are therefore excluded from the plan. See Rev. Rul. 59-14, C.B. 1959-1, 84.

(m) COVERAGE REQUIREMENTS MUST BE MET ON AT LEAST ONE DAY IN EACH QUARTER.-The coverage requirements of section 401(a)(3) of the Code, either on the percentage basis under subparagraph (A) or on the basis of a nondiscriminatory classification under subparagraph (B), may be satisfied for an entire taxable year if such requirements are met on at least one day in each quarter of the taxable year. for example assuming that the taxable year coincides with the calendar year, if the percentage basis is applicable and on the first day of the taxable year 1,000 employees have at least the minimum service requirements prescribed by subparagraph (A), it is sufficient if not less than 700 employees are eligible to participate and not less than 80 percent of those eligible are actually participating on that day even though employee turnover changes the percentages to less than 70 and 80 on all other days prior to April 1 of the same year. The percentage requirements will again have to be met on at least one day during the quarter commencing with April 1, and so on for the other quarters during the year.

(n) DENIAL OF PARTICIPATION FOR FAILURE TO ENTER PLAN UPON BECOMING ELIGIBLE.-Plans may provide for denial of participation for failure to enter plan upon becoming eligible provided that participation requires something substantially more than mere consent on the part of the employee. For example, under an employee contributory plan, if an employee refuses to sign a prescribed form for participation authorizing salary deductions in accordance with the plan, the plan may provide for the denial of participation at any other time or for a limited time. Similarly, under an insured plan which requires a physical examination and information as to condition of health, the plan may provide that refusal to take the examination or furnish the information will bar the employee from participation. Adequate notice, however, must be given the employee and the consequences of his failure to comply must be clearly presented to him after which, if he refuses to join, the exclusion provisions of the plan become operative as to such employee. Such provisions must be uniformly applied so as not to result in the prohibited discrimination.

(o) REENTRY INTO PLAN AFTER DISCONTINUANCE OF PARTICIPATION.-Plans may provide for reentry after discontinuance of original participation upon severance of employment or for other reasons, such as failure to continue contributions on the part of the employee. Such provisions, however, must be uniformly applied and in no event should they permit a duplication of benefits.

(p) DELAY IN PURCHASING INSURANCE CONTRACTS.-Generally, a statement in a plan exonerating the trustee from liability in the event of a reasonable delay in the purchase of insurance contracts for participants will not adversely affect the qualification of the plan, provided, however, that the benefits are calculated from the effective date of participation.

(q) EMPLOYEES OF MORE THAN ONE EMPLOYER.-In the case of a pension plan maintained by more than one employer, where employees covered by the plan may receive compensation from more than one of the participating employers, the aggregate compensation may be used in determining the employee's eligibility for benefits in the plan. See Rev. Rul. 55-276, C.B. 1955-1, 401.

PART 5. -- DISCRIMINATION IN CONTRIBUTIONS OR BENEFITS

SECTION 401(a)(4) OF THE INTERNAL REVENUE CODE OF 1954-REGULATIONS SECTION 1.401-4

(a) NONDISCRIMINATORY CONTRIBUTIONS OR BENEFITS.-One of the requirements for qualification of a plan is that there must be no discrimination in contributions or benefits in favor of employees who are officers, shareholders, supervisors, or highly compensated, as against other employees whether within or without the plan. See section 1.401-4(a)(1)(i) of the regulations. Thus, for example, a profit-sharing plan which provides for allocations of employer contributions among participants to the extent of 20 percent of compensation for highly compensated employees, and but 10 percent for all others, is discriminatory within the purview of section 401(a)(4) of the Code. See I.T. 3678, C.B. 1944, 321. Similar considerations apply to pension and annuity plans, but differences in favor of higher paid employees may be acceptable if the plan is satisfactorily integrated. See part 4(j) hereof. Also, as provided in section 1.401-4(a)(1)(ii) of the regulations, any amount allocated to an employee which is withdrawn before the expiration of the time or the occurrence of an event specified in section 1.401-1(b)(1)(ii) of the regulations is not considered in determining whether the contributions under the plan discriminate in favor of employees who are officers, etc. See Rev. Rul. 56-497, C.B. 1956-2, 284.

(b) VARIATIONS IN CONTRIBUTIONS OR BENEFITS.-Variations in contributions or benefits may be provided so long as the plan, viewed as a whole for the benefit of employees in general, with all its attendant circumstances, does not discriminate in favor of employees who are officers, etc. In some cases, benefits under a profit-sharing plan may vary by reason of a distribution formula which takes into consideration years of service. See I.T.'s 3685 and 3686, C.B. 1944, 324 and 326, respectively, and P.S. No. 28, dated September 2, 1944. While the situation described in I.T. 3685 illustrates the result in that case under which the addition of units of compensation and units of service did not result in the prohibited discrimination, and I.T. 3686 illustrates a case in which the multiplication of units of compensation by units of service resulted in such discrimination, it was not intended to imply by those rulings that any formula using the addition approach is automatically acceptable and that any formula using the multiplication method is basically discriminatory. The result of the operation of the formula is controlling in each case. If the application of any type of formula results in the prohibited discrimination, as measured by the ratio of benefits to compensation, the formula is not acceptable. See also Rev. Rul. 57-77, C.B. 1957-1, 158.

(c) VESTED RIGHTS.-Various provisions for vesting are in use, ranging from complete and immediate vesting through different forms of graduated vesting, upon completion of stated service or participation requirements, and, or, reaching a specified age, to no vesting until attainment of normal or stated retirement age. A determination as to satisfactory vesting provisions will of necessity depend on the facts in a particular case. For example, where a company with a large employee turnover experience establishes a plan covering all employees, but provides no vested rights prior to normal retirement, the discriminatory situation described in part 4(i) hereof may result. Accordingly, an advance favorable determination with respect to the qualification of such plan is not warranted. The situation may be remedied, however, by a provision for fully vested rights after a reasonable waiting period. See P.S. No. 22, dated September 2, 1944.

(1) Requirement for ultimate vesting .-A plan will not be held to qualify unless an employee who has reached the normal retirement age (in the case of a pension or annuity plan) or the stated age (or other specified event has transpired in the case of a profit-sharing or stock bonus plan), and has satisfied any reasonable and uniformly applicable requirements as to length of service or participation, is vested in the contributions made or benefits payable under the plan. Provision may, however, be made for discontinuance of benefits to a retired employee for cause, which must be distinctly specified, such as, for example, taking a position with a competitor of the employer, in divulging the employer's trade secrets to competitors. Similarly, provision may be made for the granting of less liberal rights under such circumstances. Whatever provisions are made, however, must not discriminate in favor of employees who are officers, shareholders, supervisors, or highly compensated.

(2) Vesting on termination of plan .-Qualified plans are to provide for fully vested rights in all participants, and for distribution of the funds, upon the termination of the plan. Any provision for distribution is acceptable if it specifies the method to be used and: (1) is not in conflict with the restrictions set forth in Mimeograph 5717, C.B. 1944, 321 (see subpart (e) hereof), and (2) cannot otherwise discriminate in favor of employees who are officers, etc. See section 1.401-4(c) of the regulations. The distribution of unallocated funds may be in cash or in the form of other benefits provided under the plan. The distribution among employees, other than those whose benefits have been restricted in accordance with the provisions of Mimeograph 5717 need not necessarily benefit all such other employees. For example, a distribution may be satisfactory if priority is given to benefits for employees over the age of 50 at the time of termination of the plan, or those who then have at least 10 years of service, or those who meet both such age and service requirements, provided, however, that there is no possibility of discrimination in favor of employees who are highly compensated, etc. Here, too, if there is no possibility that the prohibited discrimination will result, upon termination of the plan the funds may be used, for example, first to continue benefits to retired employees, then for employees who have met the requirements for retirement but have not yet retired, then for employees over age 60, and so on until the funds are fully exhausted.

(3) Vesting upon suspension of contributions under a profit-sharing plan .-If, under the terms of a profit-sharing plan, authority is specifically reserved to discontinue contributions without terminating the trust, the plan must also contain an appropriate provision granting fully vested rights to participants upon discontinuance of contributions by the employer. The situation is similar to a case in which actual termination of the trust occurs. See Rev. Rul. 56-596, C.B. 1956-2, 288.

(d) APPLICATION OF FORFEITURES.-Funds under a qualified plan, arising from forfeitures or other reason, must not be allocated to the remaining participants in such a manner as to effect the prohibited discrimination. This requirement is met in the case of a pension plan by complying with the rule enunciated in section 1.401-1(b)(1)(i) of the regulations, regarding definitely determinable benefits, that: `Benefits are not definitely determinable if funds arising from forfeitures on termination of service, or other reason, may be used to provide increased benefits for the remaining participants instead of being used to reduce the amount of contributions by the employer.' This provision is equally applicable to pension plans of the money-purchase type. See Rev. Rul. 109, C.B. 1953-1, 288, and Rev. Rul. 60-73, C.B. 1960-1, 155. Similarly, in a stock bonus or profit-sharing plan, provision may be made that forfeitures be used to reduce the employer contributions which would otherwise be required under the contribution formula, but such application of forfeitures is not mandatory in plans of these types. It should be observed, however, that whatever provision is made for absorbing forfeitures, discrimination in favor of employees who are officers, etc., must not result.

(e) TERMINATION RULE.-If benefits for employees who are officers, etc., are funded, or substantially so, because of their nearness to retirement, and benefits for other employees are not similarly funded prior to termination of the plan, the prohibited discrimination will result. Consequently, under the applicable circumstances, an advance favorable determination letter as to the qualification of a pension or annuity plan will not be issued unless the plan contains satisfactory provisions limiting the benefits for officers, etc., in the event of early termination of the plan. The rules for this purpose are set forth in Mimeograph 5717, C.B. 1944, 321, modified by Revenue Ruling 61-10, C.B. 1961-1, 143. Explanatory releases consist of P.S. Nos. 8, 25, 29, 31, 38, 42, 50, and 52 as modified by Revenue Ruling 55-60, C.B. 1955-1, 37. Similar rules are not applicable to stock bonus and profit-sharing plans since acceptable allocation formulae under such plans are designed to preclude the prohibited discrimination under comparable circumstances. The requirements pertaining to permanency, however, are applicable to all types of plans. See part 2(p) hereof.

(f) DISCONTINUANCE OR SUSPENSION OF CONTRIBUTIONS AND CURTAILMENTS.-A discontinuance of contributions is in effect a termination of the plan except that the formal steps to accomplish such result are not taken. Employees who become eligible to enter the plan subsequent to the discontinuance receive no benefits and no additional benefits, attributable to employer contributions, accrue to any of the participants unless contributions are resumed. The same requisites which apply to a termination of a plan are, therefore, equally applicable to a discontinuance. In such case, vesting of employees' rights is required. See paragraph (c)(2) of this part and Rev. Rul. 55-186, C.B. 1955-1, 39, as modified by Rev. Rul. 56-596, C.B. 1956-2, 288.

(1) Suspensions .-A suspension is a temporary cessation of contributions which may ripen into a discontinuance. In the case of a pension or annuity plan, however, a suspension of contributions will not necessarily require vesting of employees' rights merely because of the existence of such situation, and the applicability of a prior ruling as to the qualification of the plan under section 401(a) of the Code will not be affected thereby if the following conditions are met, namely: (1) The benefits to be paid or made available under the plan are not affected at any time by the suspension, and (2) the unfunded past service cost at any time (which includes any unfunded prior normal cost and unfunded interest on any unfunded cost) does not exceed the unfunded past service cost as of the date of establishment of the plan (plus any additional past service or supplemental costs added by amendment). See P.S. 57, as amended by Rev. Rul. 56-596. In the case of a profit-sharing plan, contributions must be recurring and substantial. See section 1.401-1(b)(2) of the regulations. A determination as to whether a suspension of contributions under a profit-sharing plan constitutes a discontinuance will be made upon consideration of the facts and circumstances of the particular case. For factors in determining whether a suspension of contributions under a profit-sharing plan constitutes a discontinuance, see Rev. Rul. 60-2, C.B. 1960-1, 164. Provision may, however, be made that benefits be suspended for any period of time during which primary insurance benefits under the Federal Social Security Act are discontinued because of employment after retirement date. See part 2(n) hereof and Rev. Rul. 82, C.B. 1953-1, 288.

(2) Curtailments .-Where a plan which requires employee contributions is amended so as to make it noncontributory, and provision is also made for a refund of employee contributions, the plan is curtailed but its status for qualification is thereby not adversely affected if the prohibited discrimination does not result. See Rev. Rul. 61-79, C.B. 1961-1, 138, amplifying Rev. Rul. 55-14, C.B. 1955-1, 302.

(g) TOPHEAVINESS.-Paragraph (5) of section 401(a) of the Code provides, in part, that a plan shall not be considered discriminatory within the meaning of paragraphs (3)(B) or (4) of such section merely because the contributions or benefits of or on behalf of the employees under the plan bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of such employees. However, in the case of pension and annuity plans which are based on a salary classification, i.e ., exclusion of employees earning less than a specified amount, such as $4,800 per annum, the benefits under the plan must integrate with those provided under the Social Security Act or similar public retirement plan. See part 4(j) hereof. If under the benefit formula of a pension or annuity plan benefits are provided which bear a uniform relationship to compensation, or which do not discriminate in favor of the group with respect to which discrimination is prohibited when social security or similar Federal or State retirement benefits are taken into account, the benefits and contributions are not discriminatory provided the plan contains adequate safeguards against discrimination in the event of termination of the plan or failure to meet the current costs during the first ten years. See paragraph (e) hereof. A pension or annuity plan which is not in conformance with the aforesaid does not comply with the requirements of paragraph (4) of section 401(a) of the Code, with respect to nondiscrimination as to contributions or benefits. A ceiling or similar limitation on the amount of benefits is not required, however, in view of the provisions of section 401(a)(5) of the Code, but a plan under which benefits are limited may be satisfactory whereas otherwise certain essential requirements may not be fully met.

(h) NORMAL RETIREMENT AGE.-The normal retirement age in a pension or annuity plan is the lowest age specified in the plan at which the employee has the right to retire without the consent of the employer and receive retirement benefits based on service to date of retirement at the full rate set forth in the plan ( i.e. without actuarial or similar reduction because of retirement before some later specified age). Ordinarily, the normal retirement age under pension and annuity plans is 65, the same as under the old-age, survivors, and disability insurance provisions of the Social Security Act. A different age may be specified, provided that if it is lower than 65 it represents the age at which employees customarily retire in the particular company or industry and is not a device to accelerate funding. In profit-sharing or stock bonus plans, where there is a stated retirement age it is merely one of several events which may be designated as fixing the time for making distributions. Since the amount of the distributions is dependent upon profits, there is no definitely stated rate of benefits payable at such age. Consequently, the stated retirement age in a profit-sharing or stock bonus plan does not have the same significance as `normal retirement age' in a pension plan.

(i) OPTIONAL RETIREMENT PRIOR TO NORMAL RETIREMENT AGE.-Any reasonable optional early retirement age will generally be acceptable provided, however, that if the employer's consent is required, the value of the early retirement benefit does not exceed the value of the employee's vested benefits at that time. This requirement was first announced in Revenue Ruling 57-163, part 5(f), C.B. 1957-1, 128, at 149 originally published in I.R.B. 1957-16, 10, on April 22, 1957. Prior to that date, determination letters had been issued on the qualification of plans which provided for early retirement with the employer's consent if it appeared that the prohibited discrimination would not result because of such provision. Accordingly, such determination letters continue in effect unless and until revoked. See Rev. Rul. 58-151, C.B. 1958-1, 192, as amplified by Rev. Rul. 58-604, C.B. 1958-2, 147. As for provisions in disability and hardship cases, see paragraph (o) hereof. If the optional early retirement age is earlier than 65 (60 for women), and if integration with old-age, survivors', and disability insurance, or with the benefits under the Railroad Retirement Act, is involved (see part 4(j) hereof), the benefits which depend on integration must be appropriately limited. See paragraph 9 of Mim. 6641, C.B. 1951-1, 41, as modified by Rev. Rul. 61-75, C.B. 1961-1, 140, or paragraph 7 of Rev. Rul. 12, C.B. 1953-1, 290, at 292, whichever is applicable.

(j) PARTICIPATION AFTER NORMAL RETIREMENT AGE.-The normal retirement age is the time from which definitely determinable benefits under a pension plan become fixed and payable. Accordingly, an employee who has reached such age and has fulfilled the service requirement and other uniformly applicable provisions of the plan must be permitted to retire and to commence receiving the benefits payable thereunder. Arrangements, however, may be mutually made for continued employment beyond normal retirement age. In such event, provision may be made with respect to the treatment of the pension benefits such as, for example, payment as through the employee had actually retired, deferment to actual retirement without increment for the interval between normal retirement date and actual retirement, or actuarial equivalent on actual retirement of the benefit at normal retirement age. Whatever provisions are made, however, must be uniformly applied to all participants.

(1) Additional benefits for service after normal retirement age .-Provision may be made for additional benefits on account of service after normal retirement age provided such provision is uniformly applicable to all employees under similar circumstances and does not result in the prohibited discrimination. In a unit-benefit plan, the units may be continued during the time of the extended service and the total computed to the time of actual retirement. Under a money-purchase plan, the regular rate of contributions may continue to actual retirement. Under a fixed-benefit plan the benefits payable at actual retirement may be the acturial equivalent of those payable at normal retirement age.

(2) Continued participation under a profit-sharing or stock bonus plan .-A provision for continued participation under a profit-sharing or stock bonus plan and for contributions to provide additional benefits for employees who remain in employment beyond the stated age does not adversely affect the qualification of the plan, provided, however, that such provision is uniformly applied to all employees under similar circumstances and does not result in the prohibited discrimination.

(k) BASIS OF COMPENSATION ON WHICH BENEFITS ARE COMPUTED.-Section 401(a)(5) of the Code provides in part: `Neither shall a plan be considered discriminatory * * * merely because the contributions or benefits of or on behalf of the employees under the plan bear a uniform relationship to the total compensation, or the basic or regular rate of compensation , or such employees * * *.' Italics supplied. Thus, total compensation (which may include bonuses, commissions, or overtime pay), basic compensation, or regular rate of compensation may be used, provided that whatever is used is consistently and uniformly applicable to all participants.

(l) FINAL PAY PLANS.-Section 1.401-1(b)(3) of the regulations provides in part: `* * * a plan is not for the exclusive benefit of employees in general if, by any device whatever, it discriminates either in eligibility requirements, contributions, or benefits in favor of employees who are officers, shareholders, persons whose principal duties consist in supervising the work of other employees, or the highly compensated employees. See section 401(a)(3), (4), and (5).' Thus, benefits computed at a uniform rate of compensation for all participants may be nondiscriminatory but if compensation is adjusted to favor one or a select few the plan may become discriminatory in operation. See section 401(a)(5) of the Code. For example, under a 50 percent fixed benefit plan, a $10,000-a-year officer who fulfills all requirements for retirement would be entitled to an annuity of $5,000, but if shortly before retirement his compensation is increased to $20,000 per annum his retirement annuity, computed on final salary, would be $10,000, or 100 percent of compensation before the increase, whereas others would only be receiving 50 percent. Section 1.401-1(b)(3) of the regulations also points out: `The law is concerned not only with the form of a plan but also with its effects in operation. For example, section 401(a)(5) specifies certain provisions which of themselves are not discriminatory. However, this does not mean that a plan containing these provisions may not be discriminatory in actual operation.' Accordingly, in any case where increases in compensation during the last five years of employment are taken into account for the purpose of computing benefits, provision is generally made that such benefits are to be based on compensation averaged over a period of at least five years. In a pension plan which provides both past and future service credits the past service credits may be computed on the average compensation for the five-year period immediately preceding the establishment of the plan.

(m) ADJUSTMENT OF BENEFITS DUE TO INCREASES OR DECREASES IN COMPENSATION.-Consistent and uniform bases of compensation for determining benefits under a plan are essential in order to preclude the prohibited discrimination. If benefits are based on compensation at the time the plan is established, and if certain highly compensated employees are within a few years of retirement, their benefits will be based on the highest, or nearly the highest, compensation, while lower paid employees who entered the service of the employer shortly before the plan was established will receive benefits based on the lowest, or nearly the lowest, compensation. To eliminate discrimination, a consistent and uniform application should prevail as between both groups, e.g. , where compensation within a few years before retirement, which includes salary increments since original employment, is used for the highly compensated employees, similar compensation should be used for the lower paid employees. Therefore, provision is to be made for increases in benefits when compensation on which benefits are computed is increased. See Mim. 5677, C.B. 1944, 320. Plans may also provide for decreases in benefits because of decreases in compensation but since the aforesaid result is not present such provision is not required.

(n) DISCRETION AS TO PAYMENT OF BENEFITS UNDER BASIC OPTIONS.-Plans may include various modes of settlement for payment of benefits if under each mode the distribution has the same value as a distribution determined under any other mode of settlement provided for under the plan, and further, if, upon retirement (or event calling for a distribution in a profit-sharing plan) each participant is entitled to a fully vested right in the amount which has been accumulated for his benefit. In an insured plan, any type of benefit which is provided under the options contained in the insurance contract is the actuarial equivalent of any other option. Consequently, discretion in the trustee to determine under which option benefits will be paid does not result in the prohibited discrimination. Similar discretion may be provided for in a profit-sharing plan which, for example, permits the trustee to determine whether lump-sum or periodic distributions are to be made in particular cases. The amounts distributable must be fully vested in the employees in either situation, and, if periodic distributions are to be made to some as against lump-sum payments to others, the present value of all such periodic amounts payable to any employee is to be equal to the immediate lump-sum otherwise distributable to him.

(o) PROVISIONS FOR DISABILITY AND HARDSHIP CASES.-Pension plans may contain provisions for early retirement because of disability provided that the term `disability' is defined and the rules with respect thereto are uniformly and consistently applied to all employees in similar circumstances. Provisions may also be made in stock bonus and profit-sharing plans for accelerated distributions because of hardship provided that the term `hardship' is defined, the rules with respect thereto are uniformly and consistently applied, and the distributable portion does not exceed the employee's vested interest. Similar provisions, however, are not permissible under a pension plan, since, as provided for in section 1.401-1(b) (1)(i) of the regulations, such a plan is established and maintained `primarily to provide systematically for the payment of definitely determinable benefits to * * * employees over a period of years, usually for life, after retirement.' See Rev. Rul. 56-693, C.B. 1956-2, 282, as modified by Rev. Rul. 60-323, C.B. 1960-2, 148.

(p) PROVISION THAT BENEFITS BE BASED ON CASH SURRENDER VALUE IN INSURED PLANS.-If an insured plan provides that benefits shall be based on cash surrender values, all contracts purchased must provide uniform cash surrender values with respect to all employees under similar circumstances.

(q) LOAN PRIVILEGES.-Provision may be made for the granting of loans to participants up to the extent of their vested interests subject to the application of specified uniform rules consistently followed. It should be noted, however, that so-called `loans' may constitute `distributions' if there is tacit understanding between the parties that collection is not intended.

(r) PAST SERVICE BENEFITS IN PLANS WHICH CONTAIN A MINIMUM AGE OR SERVICE REQUIREMENT FOR ELIGIBILITY.-A plan which contains a minimum age or service requirement for eligibility and provides for past service credits for all prior service of original, but not subsequent, participants will generally be considered objectionable within the purview of section 401(a)(3)(B) and (4) of the Code unless it can be demonstrated that such credits do not result in the prohibited discrimination. Where the difference is only one year, however, e.g., if there is a one-year waiting period for eligibility, but original participants are given credit for all prior service, including the one-year waiting period, and new participants do not receive credit based on the one year, such a provision may be acceptable. Provision may also be made for credits on account of past services rendered after attainment of a specified age or completion of minimum service, if applied to original as well as subsequent participants.

(s) RIGHT OF TRUSTEE TO BORROW ON INSURANCE CONTRACTS.-Provision may be made granting the trustee the right to borrow against the loan values of insurance contracts, provided, however, that in doing so the remaining interest of employees who are officers, etc., is proportionately no greater than the interest of other employees.

(t) EARMARKED INVESTMENTS.-Where amounts to be distributed to participants under a profit-sharing trust are measured by investments which have been earmarked for their respective accounts, the trustee is to invest each participant's interest proportionately, unless all participants have the right to direct the trustee to select the type of investment with respect to their individual shares.

APPENDIX

RULINGS INCORPORATED BY REFERENCE

[Editor's Note: The format of the following tables has been changed to facilitate electronic presentation.]

                     COMMISSIONER'S MIMEOGRAPHS

Subsequent Action, if Any: [NONE]

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5677 1944, 320

Subsequent Action, if Any: [NONE]

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5717 1944, 321

Subsequent Action, if Any: Modified by Revenue Ruling 61-10, C.B. 1961-1, 143

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5985 1946-1, 72

Subsequent Action, if Any: Modified by Revenue Ruling 57-419, C.B. 1957-2, 264

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6020 1946-1, 74

Subsequent Action, if Any: Modified by Revenue Ruling 59-402, C.B. 1959-2, 122

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6136 1947-1, 58

Subsequent Action, if Any: Modified by Revenue Ruling 55-60, C.B. 1955-1, 37

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6394 1949-1, 118

Subsequent Action, if Any: [NONE]

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6641 1951-1, 41.

Subsequent Action, if Any: Amended by Revenue Ruling 13, C.B. 1953-1, 294, and provisions extended to cover integration at $4,200 by Revenue Ruling 56-692, C.B. 1956-2, 287, and at $4,800 by Revenue Ruling 61-75, C.B. 1961-1, 140

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                            I.T. RULINGS

Subsequent Action, if Any: [NONE]

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3613 1943, 475

Subsequent Action, if Any: [NONE]

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3614 1943, 476

Subsequent Action, if Any: [NONE]

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3615 1943, 477

Subsequent Action, if Any: [NONE]

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3660 1944, 136

Subsequent Action, if Any: [NONE]

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3678 1944, 321

Subsequent Action, if Any: [NONE]

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3685 1944, 324

Subsequent Action, if Any: [NONE]

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3686 1944, 326

Subsequent Action, if Any: [NONE]

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4020 1950-2, 61

Subsequent Action, if Any: [NONE]

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                           REVENUE RULINGS

Subsequent Action, if Any: [NONE]

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13 1953-1, 294

Subsequent Action, if Any: Amending Mimeograph 6641, C.B. 1951-1, 41; amended by Revenue Ruling 61-75, C.B. 1961-1, 140

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33 1953-1, 267

Subsequent Action, if Any: Modified by Revenue Ruling 57-163, C.B. 1957-1, 128, and the instant ruling

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82 1953-1, 288

Subsequent Action, if Any: [NONE]

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109 1953-1, 288

Subsequent Action, if Any: Referred to in Revenue Ruling 60-73, C.B. 1960-1, 155

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185 1953-2, 202

Subsequent Action, if Any: Referred to in Revenue Ruling 60-337, C.B. 1960-2, 151

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54-51 1954-1, 147

Subsequent Action, if Any: Amplified by Revenue Ruling 57-213, C.B. 1957-1, 157, and by Revenue Ruling 60-84, C.B. 1960-1, 159

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54-67 1954-1, 149

Subsequent Action, if Any: [NONE]

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54-152 1954-1, 149

Subsequent Action, if Any: [NONE]

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54-172 1954-1, 394

Subsequent Action, if Any: [NONE]

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54-231 1954-1, 150

Subsequent Action, if Any: [NONE]

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54-398 1954-2, 239

Subsequent Action, if Any: Revokes P.S. 19, August 29, 1944

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55-14 1955-1, 302

Subsequent Action, if Any: Amplified by Revenue Ruling 61-79, C.B. 1961-1, 138

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55-60 1955-1, 37

Subsequent Action, if Any: Modifies Mimeograph 6136, C.B. 1947-1, 58, and P.S. 52

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55-81 1955-1, 392

Subsequent Action, if Any: [NONE]

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55-186 1955-1, 39

Subsequent Action, if Any: Modified by Revenue Ruling 56-596, C.B. 1956-2, 288

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55-276 1955-1, 401

Subsequent Action, if Any: [NONE]

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55-629 1955-2, 588

Subsequent Action, if Any: [NONE]

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55-681 1955-2, 585

Subsequent Action, if Any: Supplementing P.S. 64, November 9, 1950

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55-748 1955-2, 234

Subsequent Action, if Any: [NONE]

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56-23 1956-1, 598

Subsequent Action, if Any: Modified by Revenue Ruling 57-546, C.B. 1957-2, 886

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56-267 1956-1, 206

Subsequent Action, if Any: [NONE]

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56-432 1956-2, 284

Subsequent Action, if Any: [NONE]

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56-497 1956-2, 284

Subsequent Action, if Any: [NONE]

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56-596 1956-2, 288

Subsequent Action, if Any: Modifying P.S. 57, August 5, 1946, and Revenue Ruling 55-186, C.B. 1955-1, 39

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56-633 1956-2, 279

Subsequent Action, if Any: [NONE]

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56-656 1956-2, 280

Subsequent Action, if Any: [NONE]

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56-673 1956-2, 281

Subsequent Action, if Any: [NONE]

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56-692 1956-2, 287

Subsequent Action, if Any: Extending provisions of Mimeograph 6641, C.B. 1951-1, 41, as amended by Revenue Ruling 13, C.B. 1953-1, 294, to cover integration at $4,200

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56-693 1956-2, 282

Subsequent Action, if Any: Modified by Revenue Ruling 60-323, C.B. 1960-2, 148

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57-77 1957-1, 158

Subsequent Action, if Any: [NONE]

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57-163 1957-1, 128

Subsequent Action, if Any: Modified by instant ruling

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57-213 1957-1, 157

Subsequent Action, if Any: Amplifying Revenue Ruling 54-51, C.B. 1954-1, 147

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57-419 1957-2, 264

Subsequent Action, if Any: Modifying Mimeograph 5985, C.B. 1946-1, 72, and revoking P.S. 55, January 9, 1946

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57-546 1957-1, 886

Subsequent Action, if Any: Modifying Revenue Ruling 56-23, C.B. 1956-1, 598

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58-151 1958-1, 192

Subsequent Action, if Any: Amplified by Revenue Ruling 58-604, C.B. 1958-2, 147

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58-604 1958-2, 147

Subsequent Action, if Any: Amplifying Revenue Ruling 58-151, C.B. 1958-1, 192

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59-14 1959-1, 84

Subsequent Action, if Any: [NONE]

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59-185 1959-1, 86

Subsequent Action, if Any: [NONE]

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59-402 1959-2, 122

Subsequent Action, if Any: Modifying Mimeograph 6020, C.B. 1946-1, 74

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60-2 1960-1, 164

Subsequent Action, if Any: [NONE]

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60-33 1960-1, 152

Subsequent Action, if Any: [NONE]

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60-73 1960-1, 155

Subsequent Action, if Any: Makes reference to Revenue Ruling 109, C.B. 1953-1, 288

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60-83 1960-1, 157

Subsequent Action, if Any: [NONE]

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60-84 1960-1, 159

Subsequent Action, if Any: Amplifying Revenue Ruling 54-51, C.B. 1954-1, 147; see also Revenue Ruling 57-213, C.B. 1957-1, 157

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60-276 1960-2, 150

Subsequent Action, if Any: Superseding Revenue Ruling 59-309, C.B. 1959-2, 117

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60-281 1960-2, 146

Subsequent Action, if Any: [NONE]

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60-323 1960-2, 148

Subsequent Action, if Any: Modifying Revenue Ruling 56-693, C.B. 1956-2, 282

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60-337 1960-2, 151

Subsequent Action, if Any: Makes reference to Revenue Ruling 185, C.B. 1953-2, 202

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61-10 1961-1, 143

Subsequent Action, if Any: Modifying Mimeograph 5717, C.B. 1944, 321

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61-75 1961-1, 140

Subsequent Action, if Any: Modifying Mimeograph 6641, C.B. 1951-1, 41, as amended by Revenue Ruling 13, C.B. 1953-1, 294

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61-79 1961-1, 138

Subsequent Action, if Any: Amplifying Revenue Ruling 55-14, C.B. 1955-1, 302

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                         REVENUE PROCEDURES

Subsequent Action, if Any: [NONE]

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56-22 1956-2, 1380

Subsequent Action, if Any: [NONE]

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STATUS OF P.S. RELEASES

The following list is designed to give current information as to the status of P.S. Releases issued under the Internal Revenue Code of 1939, which, to the extent consistent with the Internal Revenue Code of 1954 and the regulations thereunder, remain effective, except as indicated:

P.S. NO. DATE

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1 May 9, 1944

STATUS: Administrative -- inapplicable as a result of action taken on P.S. 2 by Revenue Ruling 2, C.B. 1953-1, 484, 488.

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2 July 29, 1944

STATUS: Administrative -- revoked by Revenue Ruling 2, C.B. 1953-1, 484, 488.

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3 July 29, 1944

STATUS: Outstanding.

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4 July 29, 1944

STATUS: Outstanding.

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5 July 29, 1944

STATUS: Applicable under Mimeographed 5539, C.B. 1943, 499.

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6 July 29, 1944

STATUS: Revoked by Revenue Ruling 55-748, C.B. 1955-2, 234.

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7 July 29, 1944

STATUS: Outstanding; see, however, Mimeograph 6136, C.B. 1947-1, 58, as modified by Revenue Ruling 55-60, C.B. 1955-1, 37.

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8 August 4, 1944

STATUS: Outstanding; see, however, P.S. 38, October 7, 1944, for more detailed provisions.

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9 August 4, 1944

STATUS: Outstanding, except for provision as to wartime restriction which is no longer applicable.

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10 August 10, 1944

STATUS: Obsolete as a result of issuance of I.T. 4020, C.B. 1950-2, 61.

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11 August 10, 1944

STATUS: Outstanding; see, however, Part 5(t) of instant ruling.

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12 August 10, 1944

STATUS: Obsolete as a result of decision in Saalfield Publishing Co., Inc., 11 T.C. 756; Acquiescence, C.B. 1952-2, 3.

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13 August 24, 1944

STATUS: Outstanding under prior law; as to current position, see Regulations, section 1.401-3(e), as amended by T.D. 6447, C.B. 1960-1, 163.

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14 August 24, 1944

STATUS: Outstanding; see also Regulations, section 1.401-1(d).

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15 August 24, 1944

STATUS: Modified; see Part 2(e)(4) of instant ruling.

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16 August 24, 1944

STATUS: Obsolete as a result of new definition of "profit-sharing plan"; Regulations, section 1.401-1(b)(1)(ii).

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17 August 24, 1944

STATUS: Modified by Revenue Ruling 55-758, C.B. 1955-2, 587; see also Regulations, section 1.401-1(e).

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18 August 24, 1944

STATUS: Outstanding.

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19 August 29, 1944

STATUS: Revoked by Revenue Ruling 54-398, C.B. 1954-2, 239.

---------------------------------------------------------------------

20 August 29, 1944

STATUS: Obsolete as a result of issuance of I.T. 4020, C.B. 1950-2, 61.

---------------------------------------------------------------------

21 August 29, 1944

STATUS: Obsolete as a result of new definition of "profit-sharing plan"; Regulations, section 1.401-1(b)(1)(ii).

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22 September 2, 1944

STATUS: Outstanding, but see instant ruling, Part 5(c).

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23 September 2, 1944

STATUS: Outstanding, but see instant ruling, Part 2(e)(1).

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24 September 2, 1944

STATUS: Outstanding, except as to provision for definite formula; see Regulations, section 1.401-1(b)(1)(ii).

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25 September 2, 1944

STATUS: Outstanding.

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26 September 2, 1944

STATUS: Outstanding; subject, however, to minimum funding prescribed in P.S. No. 57, as modified by Revenue Ruling 56-596, C.B. 1956-2, 288.

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27 September 2, 1944

STATUS: Outstanding.

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28 September 2, 1944

STATUS: Outstanding: see also I.T.'s 3685 and 3686, C.B. 1944, 324 and 326, respectively, and Revenue Ruling 57-77, C.B. 1957-1, 158.

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29 September 16, 1944

STATUS: Outstanding.

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30 September 16, 1944

STATUS: Outstanding; see also I.T. 3615, C.B. 1943, 477, and current integration rules; Regulations, section 1.401-3(e), as amended by T.D. 6447, C.B. 1960-1, 163.

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31 September 16, 1944

STATUS: Outstanding.

---------------------------------------------------------------------

32 September 20, 1944

STATUS: Outstanding.

---------------------------------------------------------------------

33 September 20, 1944

STATUS: Obsolete as a result of new definition of "profit-sharing plan"; Regulations, section 1.401-1(b)(1)(ii).

---------------------------------------------------------------------

34 September 23, 1944

STATUS: Outstanding under prior law; see, however, Revenue Ruling 12, C.B. 1953-1, 290.

---------------------------------------------------------------------

35 October 2, 1944

STATUS: Revised November 16, 1944.

---------------------------------------------------------------------

35 Revised November 16, 1944

STATUS: Modified by Revenue Ruling 54-172, C.B. 1954-1, 394.

---------------------------------------------------------------------

36 October 2, 1944

STATUS: Outstanding.

---------------------------------------------------------------------

37 October 7, 1944

STATUS: Outstanding; see also Regulations, section 1.401-1(b)(3).

---------------------------------------------------------------------

38 October 7, 1944

STATUS: Outstanding; see also P.S. 8, August 4, 1944.

---------------------------------------------------------------------

39 October 16, 1944

STATUS: Obsolete as a result of issuance of I.T. 4020, C.B. 1950-2, 61.

---------------------------------------------------------------------

40 October 19, 1944

STATUS: Obsolete as a result of new definition of "profit-sharing plan"; Regulations, section 1.401-1(b)(1)(ii).

---------------------------------------------------------------------

41 November 9, 1944

STATUS: Obsolete as a result of issuance of I.T. 4020, C.B. 1950-2, 61.

---------------------------------------------------------------------

42 November 11, 1944

STATUS: Outstanding.

---------------------------------------------------------------------

43 November 18, 1944

STATUS: Outstanding, except for second paragraph which has been rendered obsolete as a result of position set forth in Regulations, section 1.403(a)-1(a).

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44 December 11, 1944

STATUS: Outstanding, except for Salary Stabilization provisions which are no longer applicable.

---------------------------------------------------------------------

45 January 26, 1945

STATUS: Outstanding.

---------------------------------------------------------------------

46 February 10, 1945

STATUS: Obsolete as a result of new definition of "profit-sharing plan"; Regulations, section 1.401-1(b)(1)(ii).

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47 February 20, 1945

STATUS: Applicable to rulings issued prior to March 2, 1945; current position set forth in Revenue Ruling 60-276, C.B. 1960-2, 150.

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48 March 8, 1945

STATUS: Applicable under the Internal Revenue Code of 1939; see, however, Regulations, section 1.6033-1(a)(3) as to provisions under the Internal Revenue Code of 1954.

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49 June 16, 1945

STATUS: Modified by instant ruling, Part 2(r); see also Revenue Procedure 56-12, Exhibit "B," C.B. 1956-1, 1029, 1035.

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50 July 12, 1945

STATUS: Outstanding.

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51 -- Part A July 31, 1945

STATUS: Outstanding.

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51 -- Part B July 31, 1945

STATUS: Outstanding under prior law; see, however, Internal Revenue Code of 1954, section 401(a)(1) and 404(a)(3)(B).

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52 August 9, 1945

STATUS: Modified by Revenue Ruling 55-60, C.B. 1955-1, 37.

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53 October 4, 1945

STATUS: Outstanding under prior law.

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54 January 5, 1946

STATUS: Applicable to calendar year 1942 or to a fiscal year which commenced in 1942.

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55 January 9, 1946

STATUS: Revoked by Revenue Ruling 57-419, C.B. 1957-2, 264.

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56 June 27, 1946

STATUS: Outstanding.

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57 August 5, 1946

STATUS: Outstanding, except penultimate paragraph modified by Revenue Ruling 56-596, C.B. 1956-2, 288.

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58 January 30, 1947

STATUS: Revised March 7, 1947.

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58 Revised March 7, 1947

STATUS: Reissued as Revenue Ruling 55-747, C.B. 1955-2, 228.

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59 February 25, 1947

STATUS: Outstanding; also published as I.T. 3847, C.B. 1947-1, 65; see Regulations, section 1.402(a)-1(a)(6)(ii).

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60 June 19, 1947

STATUS: Procedure on terminations under prior law; see Revenue Procedure 56-12, Exhibit "A," C.B. 1956-1, 1029, 1034, for present requirements.

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61 August 12, 1947

STATUS: Applicable under prior law; see also G.C.M. 25358, C.B. 1947-2, 9; inapplicable under the Internal Revenue Code of 1954, as to which see section 403(a)(2).

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62 May 5, 1950

STATUS: Outstanding under prior law; see, however, Internal Revenue Code of 1954, section 381(c)(11) and (20).

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63 June 6, 1950

STATUS: Outstanding; see also Regulations, section 1.402(a)-1(a)(5).

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64 November 9, 1950

STATUS: Outstanding; reissued as, and supplemented by, Revenue Ruling 55-681, C.B. 1955-2, 585.

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65 November 10, 1950

STATUS: Applicable under prior law, but last paragraph now obsolete as a result of position set forth in Regulations at section 1.403 (a)-1(d).

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66 November 10, 1950

STATUS: Inapplicable to distributions of insurance contracts after October 26, 1956, as to which see Regulations, section 1.402(a)-1(a)(2), and Revenue Ruling 57-191, C.B. 1957-1, 162.

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67 August 26, 1951

STATUS: Outstanding.

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68 July 3, 1951

STATUS: Applicable with respect to compliance with the wage-stabilization requirements under the Defense Production Act of 1950; current position set forth in Revenue Ruling 60-276, C.B. 1960-2, 150.

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