Rev. Rul. 69-586

Section 1. Purpose

The purpose of this Revenue Ruling is to announce guides for determining whether a pension, annuity, profit-sharing, or stock bonus plan that has two integration levels is integrated with benefits provided by the Social Security Act as amended through 1967.

Sec. 2. Background

Section 5.011 of Revenue Ruling 69-4, C.B. 1969-1, 118, provides that the integration level of a flat-benefit excess plan may be a stated dollar amount uniformly applicable to all active participants that does not exceed the covered compensation of any individual who is or may become a participant. Section 6.01 of Revenue Ruling 69-4 provides that the integration level of a unit-benefit excess plan may be the taxable wage base during the year or a lesser stated dollar amount. Sections 13 and 14.01 of Revenue Ruling 69-4 contain similar provisions for determining the integration level of a money-purchase, profit-sharing, or stock bonus plan.

Sec. 3. Basic Limitation

An excess plan containing two integration levels is integrated if the benefit rate (or employer contribution rate) applicable at each integration level does not exceed the applicable limitation of Revenue Ruling 69-4 at such integration level, in a plan with only that one integration level.

Example 1. A flat-benefit excess plan that meets the requirements of section 4 of Revenue Ruling 69-4 provides normal annual retirement benefits upon retirement at age 65 with at least 15 years of service equal to 20% of average annual compensation in excess of $3,000 but not in excess of $4,800, plus 30% of average annual compensation in excess of $4,800. Such plan meets the requirements of this section because neither of the benefit rates exceeds 30% (i.e., the limitation of section 5.02 of Revenue Ruling 69-4).

Example 2. A flat-benefit excess plan that meets the requirements of section 4 of Revenue Ruling 69-4 provides normal annual retirement benefits upon retirement at age 65 with at least 15 years of service equal to 20% of average annual compensation in excess of $3,000 but not in excess of $4,800, plus 371/2% of average annual compensation in excess of $4,800. Such plan does not meet the requirements of this section because the benefit rate applicable to compensation in excess of $4,800 exceeds 30% (i.e., the limitation of section 5.02 of Revenue Ruling 69-4). However, the plan should be further tested in accordance with section 4 of this Revenue Ruling.

Sec. 4. Alternative Limitation for Flat-Benefit Excess Plans

A flat-benefit excess plan in which the lower integration level is less than the covered compensation of any individual who is or may become a participant is integrated if:

.01 The rate at which the normal retirement benefit is provided with respect to the portion of average annual compensation in excess of the lower integration level but not in excess of the higher integration level does not exceed the ratio (adjusted in accordance with sections 8, 9, 10, and 12.03 of Revenue Ruling 69-4) of $500 to the plan's lower integration level, and

.02 The rate at which the normal retirement benefit is provided with respect to the portion of average annual compensation in excess of the higher integration level does not exceed the sum of:

1 The actual normal annual retirement benefit provided on the portion of average annual compensation in excess of the lower integration level but not in excess of the higher integration level (reduced by any benefit that, in accordance with section 12.03 of Revenue Ruling 69-4, is deemed attributable to employee contributions), divided by the higher integration level, plus

2 The applicable limitation determined in accordance with section 5.021 or 5.03 of Revenue Ruling 69-4 and adjusted in accordance with sections 8, 9, 10, and 12.03 of that Revenue Ruling; and

.03 The normal annual retirement benefit rates for an employee with less than 15 years of service with the employer at normal retirement age cannot exceed one-fifteenth of the benefit rates determined in accordance with sections 3.01 and 3.02, multiplied by his actual number of years of service.

Example. The facts are the same as Example 2 of section 3. The benefit rate applicable to the portion of average annual compensation in excess of $3,000 but not in excess of $4,800 exceeds 162/3% (i.e., $500 divided by $3,000), the limitation of section 3.01. Accordingly, such plan is not integrated, because the rates of benefit do not meet the requirements of either section 3 or section 4 of this Revenue Ruling.

Sec. 5. Alternative Limitation for Unit-Benefit Excess Plans Basing Benefits on Actual Compensation

A unit-benefit excess plan in which the lower integration level is less than that specified in section 6.01 of Revenue Ruling 69-4 is integrated if:

.01 The rate at which the normal retirement benefit is provided with respect to the portion of actual compensation in excess of the lower integration level but not in excess of the higher integration level does not exceed the ratio (adjusted in accordance with sections 8, 9, 10, and 12.01 of Revenue Ruling 69-4) of $16.67 to the plan's lower integration level, and

.02 The rate at which the normal retirement benefit is provided with respect to actual compensation in excess of the higher integration level does not exceed the sum of:

1. The actual normal annual retirement benefit provided on the portion of actual compensation in excess of the lower integration level but not in excess of the higher integration level (reduced by any benefit that, in accordance with section 12.01 of Revenue Ruling 69-4, is deemed attributable to employee contributions), divided by the higher integration level, plus

2. The applicable limitation determined in accordance with section 6.02 or 6.04 of Revenue Ruling 69-4 and adjusted in accordance with sections 8, 9, 10, and 12.01 of that Revenue Ruling.

Example. A unit-benefit excess plan that was established January 1, 1969, meets the requirements of section 4 of Revenue Ruling 69-4 and provides normal annual retirement benefits for service after the date of inception of the plan equal to 1/2% of actual compensation in excess of $3,600 but not in excess of $7,800, plus 11/2% of actual compensation in excess of $7,800 during each year of service subsequent to such date. In case of death or severance of employment before retirement the participant or his survivor is entitled to a refund of the participant's contributions plus 4% interest. Each participant is required to make regular contributions of 1% of his actual compensation in excess of $3,600 but not in excess of $7,800 plus 3% of his actual compensation in excess of $7,800. Such plan is integrated; this is determined as follows:

      1. Rate of benefit applicable to compensation between $3,600 and

A unit-benefit excess plan in which the lower integration level is less than that specified in section 6.01 of Revenue Ruling 69-4 is integrated if:

.01 The rate at which the normal retirement benefit is provided with respect to the portion of average annual compensation in excess of the lower integration level but not in excess of the higher integration level does not exceed the ratio (adjusted in accordance with sections 8, 9, 10, and 12.02 of Revenue Ruling 69-4) of $12.50 to the plan's lower integration level, and

.02 The rate at which the normal retirement benefit is provided with respect to average annual compensation in excess of the higher integration level does not exceed the sum of:

1. The actual normal annual retirement benefit provided on the portion of average annual compensation in excess of the lower integration level but not in excess of the higher integration level (reduced by any benefit that, in accordance with section 12.02 of Revenue Ruling 69-4, is deemed attributable to employee contributions), divided by the higher integration level, plus

2. The applicable limitation determined in accordance with section 6.03 or 6.04 of Revenue Ruling 69-4 and adjusted in accordance with sections 8, 9, 10, and 12.02 of that Revenue Ruling.

Sec. 7. Alternative Limitation for Money-Purchase, Profit-Sharing, and Stock Bonus Plans

A money-purchase, profit-sharing, or stock bonus excess plan in which the lower integration level is less than that specified in section 6.01 of Revenue Ruling 69-4 is integrated if:

.01 The rate of employer contributions with respect to the portion of actual compensation in excess of the lower integration level but not in excess of the higher integration level does not exceed $100 divided by the plan's lower integration level, and

.02 The rate of employer contributions with respect to actual compensation in excess of the higher integration level does not exceed the sum of:

1. The actual employer contribution with respect to the portion of actual compensation in excess of the lower integration level but not in excess of the higher integration level, divided by the higher integration level, plus

2. The applicable rate determined in accordance with section 13.01 or 14.02 of Revenue Ruling 69-4.

Example. A money-purchase excess plan that was established July 1, 1969, provides for employer contributions equal to 3% of actual compensation in excess of $3,000 but not in excess of $6,000, plus 71/2% of actual compensation in excess of $6,000 for each year of service subsequent to such date. Such plan is integrated; this is determined as follows:

1. Rate of employer contribution applicable to compensation between $3,000 and $6,000 does not exceed 31/3% (i.e., $100 divided by $3,000).

2. Rate of employer contribution applicable to compensation in excess of $6,000 does not exceed 71/2%:

 (a) Actual employer contribution of 3% x

Revenue Ruling 69-4, C.B. 1969-1, 118, is hereby amplified.