Rev. Rul. 66-205

Advice has been requested whether a trust forming part of a pension plan under which only employees contribute can qualify under section 401(a) of the Internal Revenue Code of 1954.

A plan and trust agreement were executed by an employer under the terms of which the only contributions to the trust are employee contributions deducted from each employee's wages by the employer at the rate of x cents per hour worked. The employer is obligated to turn over these employee contributions to the trust.

Section 401(a) of the Code provides, in part, that a trust created or organized in the United States and forming part of a pension plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust if contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees or their beneficiaries the corpus and the income of the fund accumulated by the trust in accordance with the plan.

Revenue Ruling 54-152, C.B. 1954-1, 149, holds that an employees' pension trust under which the employer does not contribute to the trust fund (the trust fund consisting only of stated contributions of employees and the income thereon), but does obligate itself to pay the full amount of the stipulated retirement benefits to each retired employee participant after the funds in the trust to the employee's credit have been exhausted, will not fail to qualify by reason of such limitations upon contributions. The fact that the employer, in that case, is committed to make up any deficiency necessary to provide the contemplated benefits if employee contributions are insufficient does not imply that a plan in which only employees contribute and under which the employer is not committed to guarantee the payment of benefits cannot qualify. The essential requirements are that the plan be established and maintained by the employer and that all applicable requirements be met. If so, the fact that the employer does not contribute and is not committed to make up benefits will not prevent qualification.

Accordingly, it is held that the mere fact that contributions to an employees' trust are only those of employees will not, of itself, preclude the qualification of the trust under section 401(a) of the Code, so long as the trust forms part of a pension plan established and maintained by the employer and is not one established by unilateral action of the employees to which the employer merely acquiesced.

Revenue Ruling 54-152, C.B. 1954-1, 149, is hereby clarified.