Rev. Rul. 67-114

Advice has been requested whether the limitations of PS No. 50, dated July 12, 1945, are still in effect in view of the provisions of section 1.401-4(c)(5) of the Income Tax Regulations concerning the restrictions upon funds or benefits necessary in order that an employees' pension or annuity plan may be acceptable after a change in the plan increases benefits to be provided for highly compensated employees.

PS No. 50 referred to parargraph 7 of Mimeograph 5717, C.B. 1944, 3218 and was issued in response to advice requested as to the necessary restrictions upon benefits or funds in order that a pension or annuity 321, and was issued in response to acceptable within the meaning of paragraph 2 of the mimeograph after a change in the plan increases the benefits to be provided by employer contributions for highly compensated employees.

PS No. 50 states that for this purpose the use of employer contributions or the benefits provided by employer contributions should be subject to any restrictions relating to the previous plan and should also be subject to restrictions relating to the change of plan as follows:

Restrictions Relating to Previous Plan .-Any restrictions to limit benefits as indicated in Mimeograph 5717 applicable to the plan before the change should apply to all benefits as if the plan had not been changed so that, in event of termination or failure to meet the costs of the plan as changed, all benefits are limited as they would have been upon termination or failure at that time to meet the costs of the plan as it existed before the change.

Restrictions Relating to Change .-The restrictions relating to the change of plan should apply to benefits or funds for each of the 25 highest paid employees on the effective date of the change except that such restrictions need not apply with respect to any employee in this group for whom the normal annual pension or annuity provided by employer contributions prior to that date and during the ensuing ten years, based on his rate of compensation on that date, could not exceed $1,500.00. In other respects the limits indicated in Mimeograph 5717 should apply to all the benefits as if they were all provided under a plan established on the effective date of the change except that, in place of the limit described under (a) of paragraph 3 of that Mimeograph, there may be substituted a limit which cannot exceed the greater of the following three amounts:

1. The employer contributions (or funds attributable thereto) which would have been applied to provide the benefits for the employee if the previous plan had been continued without change.

2. $20,000.00.

3. The sum of (a) the employer contributions (or funds attributable thereto) which would have been applied to provide benefits for the employee under the previous plan if it had been terminated the day before the effective date of change, and (b) an amount computed by multiplying the number of years for which the current costs of the plan after that date are met by (A) 20 percent of his annual compensation, or (B) $10,000.00, whichever is smaller.

Section 1.401-4(c) of the regulations also provides restrictions which must be included in a qualified plan in order to minimize the possibility of the prohibited discrimination resulting from the early termination of the plan or the discontinuance of employer contributions thereunder. These regulations incorporate a pattern of administrative rules of long standing.

Subparagraph (5) of section 1.401-4(c) of the regulations deals with the limitations which apply when a plan is amended so as to increase substantially the extent of possible discrimination. While the language of PS No. 50 has not been included verbatim, the regulations incorporate the principles contained therein. Therefore, the limitations contained in PS No. 50 are held to be still in effect.

Since the provisions of PS No. 50 are restated herein, it is hereby superseded.