Rev. Rul. 60-276

Advice has been requested whether the initial qualification of an otherwise qualified employees' pension plan and trust will be affected by a provision calling for the return of the employer's contributions to the plan in the event the plan should fail to qualify.

An employer established an employees' pension plan setting forth in definite terms the benefits to be provided, the method of funding such benefits, and all other provisions necessary to the operation of the plan. Plan costs are to be borne entirely by the employer and the participants' interests in the employer contributions are to be fully vested after a reasonable waiting period. It further provides, `This trust instrument is based upon the condition precedent that it shall be approved and qualified by the Internal Revenue Service * * * as meeting the requirements of the Federal Internal Revenue Code and regulations issued thereunder with respect to employees' trusts so as to permit the employer to deduct for income tax purposes the amounts of its contributions to the trustee for the payment of premiums on the policies of insurance procured by it, and so that such premiums will not be taxable to the employees as income.'

Section 401(a)(2) of the Code provides, as one of the requirements for exemption, that the trust instrument must make it absolutely impossible to use or divert any part of the trust corpus or income for purposes other than for the exclusive benefit of employees or their beneficiaries.

Section 1.401-2(a)(2) of the Income Tax Regulations holds, in part, that the trust instrument must definitely and affirmatively make it impossible for the nonexempt diversion or use to occur, whether by the happening of a contingency or by any other means.

The issue raised herein pertaining to contributions and benefits made conditional upon the Commissioner's initial ruling with respect to the plan has been decided by the court decision in the case of Meldrum and Fewsmith, Inc. v. Commissioner , 20 T.C. 790, acquiescence C.B. 1954-2, 5. In that case it was decided that the employer's contribution to the trust was irrevocable, since the employer could not recover its contribution if the trust was qualified. Since the employees' respective interests were not nonforfeitable at the time the contribution was made, it must be inferred that the court decided that the plan qualified under section 165(a) of the 1939 Code (corresponding to section 401(a) of the 1954 Code). The Commissioner acquiesced in this decision insofar as the issue of deductibility of the contribution is concerned.

Assuming that a provision in a plan, calling for the return of employer contributions in the event that the plan is held not to be qualified, would not of itself prevent qualification, it is apparent that no diversion of trust corpus or income is possible by reason of such provision if the plan is otherwise qualified.

Accordingly, in the instant case, the newly established employees pension plan and trust will not fail to qualify initially merely because it contains a provision that, if the Commissioner rules that such plan is not qualified, the employer could recover contributions which have been made prior to the initial determination as to qualification. This conclusion is equally applicable to profit sharing, stock bonus, or annuity plans.

Revenue Ruling 59-309, C.B. 1959-2, 117, is hereby superseded.

¹ In the publication of Revenue Ruling 59-309, C.B. 1959-2, 117, the words `in a plan, calling for the return of employer contributions' were omitted from the penultimate paragraph. The ruling, therefore, is corrected and restated in its entirety.