Rev. Rul. 67-340

Advice has been requested whether the amendment of an employees' contributory pension plan to remove the contributory feature and to provide for the return of employee contributions, adversely affected the qualification of the plan, under section 401(a) of the Internal Revenue Code of 1954, because it also provided for the payment to the participants of an additional amount not in excess of the increments actually earned on their contributions.

An employer established a pension plan which satisfied the requirements of section 401(a) of the Code. The plan initially provided for compulsory employee contributions. However, it was subsequently amended to make it noncontributory and to provide for the return of the employees' own contributions plus the interest credited to employee contributions. The amount credited as interest on employee contributions was not in excess of the amount actually earned thereon. The employer did not assume liability for costs previously funded by employee contributions. However, the amendment did provide for a substantial increase in noncontributory regular pension benefits and certain other pension plan improvements related to early retirement, spouse's pension, and vested pension rights. The amendments to the plan did not result in discrimination in favor of officers, shareholders, supervisors, or highly compensated employees.

Revenue Ruling 61-79, C.B. 1961-1, 138, holds that the amendment of a qualified, contributory employees' pension plan to eliminate and to provide for the refund of employee contributions will not adversely affect qualification of the plan, if the amendment, even though it necessitates a curtailment of benefits, does not result in discrimination in favor of officers, shareholders, supervisors, or highly compensated employees.

Revenue Ruling 61-79 does not deal with the payment of increments earned on employee contributions. However, Revenue Ruling 60-281, C.B. 1960-2, 146, which relates to the refund of the employee's own contributions upon his discontinuance of participation in the plan prior to the termination of his employment, states that a recognition of an employee's right to withdraw his own contributions carries with it a right to receive any increment actually earned on his own contributions to the plan.

Accordingly, it is held that the amendment to the instant employees' pension plan to eliminate the contributory feature and to provide for the return of employee contributions did not adversely affect the qualification of the plan, under section 401(a) of the Code, merely because it also provided for the payment to the participants of an additional amount not in excess of the increments actually earned on their contributions.

Revenue Ruling 61-79, C.B. 1961-1, 138, is hereby amplified.