Rev. Rul. 62-195

Advice has been requested whether a trust established by an employer for his employees will meet the requirements of section 401(a) of the Internal Revenue Code of 1954 if it provides that only lumpsum cash distributions may be made to participating employees upon their retirement or other separation from the service of the employer.

A corporation established a contributory retirement plan for its employees and arranged to fund the benefits thereunder through a trust established as a part thereof. Under the terms of the plan and trust, each participating employee contributes up to ten percent of his regular earnings to the trust fund and the employer, whether or not it has profits, contributes an amount equal to that contributed by each participating employee. The trust provides only for lump-sum cash distributions to participating employees upon their retirement or other separation from the employer's service. Neither the trustee nor a participant has an option to distribute, or to receive, the participant's account in the trust in any manner other than as a lump-sum cash settlement.

In order to qualify under section 401(a) of the Code, a trust must, among other things, form a part of a stock bonus, pension, or profit-sharing plan of an employer for his employees or their beneficiaries.

Section 1.401-1(b)(1)(i) to (iii), (iii), inclusive, of the Income Tax Regulations, defines pension, profit-sharing and stock bonus plans within the meaning of section 401(a) of the Code. A pension plan is defined as `a plan established and maintained by a employer primarily to provide systematically for the payment of definitely determinable benefits to his employees over a period of years, usually for life, after retirement.' A profit sharing plan is defined as `a plan established and maintained by an employer to provide for the participation in his profits by his employees or their beneficiaries.' To the extent here pertinent, a stock bonus plan is defined as `a plan established and maintained by an employer to provide benefits similar to those of 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.'

The trust under consideration does not qualify under section 401(a) of the Code as a profit sharing trust since, under the plan, the employer's contributions are not contingent upon either current or accumulated profits. Neither does the trust quality thereunder as a stock bonus trust because distributions from the trust are not made in stock of the employer company. Nor is the trust a pension trust within the meaning of section 401(a) of the Code because of the mandatory provision for a lump-sum distribution to each participant which precludes consideration of the plan as one primarily to provide for payments over a period of years, usually for life, after retirement of the employee.

If is accordingly held that an employees' trust such as here described fails to meet the requirements of section 401(a) of the Code.

Procedures are prescribed for requests with respect to the qualification of pension, annuity, profit-sharing and stock bonus plans and related trusts. See Rev. Proc. 62-31, page 517.