Rev. Rul. 69-503

Advice has been requested concerning the definition of compensation considered acceptable for purposes of sections 3.01, 5.02, 6.02, 6.03, 13.01, 13.02, and 14.02 of Revenue Ruling 69-4, C.B. 1969-1, 118, regarding the integration of pension, annuity, profit-sharing, and stock bonus plans with old-age and survivors insurance benefits provided under the Social Security Act.

It is always acceptable to define compensation for these purposes as the amount of compensation that would be subject to tax under section 3101(a) of the Internal Revenue Code of 1954 without the dollar limitation of section 3121(a)(1) of the Code. However, whether the use of a different and more restrictive definition of compensation (such as basic compensation) results in prohibited discrimination in a plan intended to integrate with old-age and survivors insurance benefits depends on the facts of the individual case. In such a plan, where the ratio of restricted compensation to total remuneration is a higher proportion for highly compensated employees than it is for lower paid employees, discrimination in favor of highly compensated employees is likely to result. Therefore, in each case where a restrictive definition of compensation is used, it must be demonstrated that, after proper allowance for Social Security benefits, the prohibited discrimination cannot result.

It is held that, for purposes of sections 3.01, 5.02, 6.02, 6.03, 13.01, 13.02, and 14.02 of Revenue Ruling 69-4, compensation, if not defined in accordance with the first sentence of the preceding paragraph, may be defined as compensation inclusive or exclusive of bonuses, commissions, or overtime pay, or as basic compensation, or as regular rate of compensation, and the plan may qualify under section 401(a) of the Code, provided it is demonstrated that whatever definition is used cannot result in the discrimination prohibited by section 1.401-4(a)(1)(i) of the Income Tax Regulations.

Revenue Ruling 69-4 is hereby amplified.