Rev. Rul. 68-24

Advice has been requested whether a profit-sharing plan will fail to qualify under section 401(a) of the Internal Revenue Code of 1954 because it allows members with no less than 60 months of participation to withdraw all meployer contributions, including contributions which have been made within the last 24 months.

An employer adopted a plan intended to qualify as a profit-sharing plan under section 401(a) of the Code. The plan provides that a member with no less than 60 months of participation may withdraw all amounts credited to his account, including employer contributions made within the last 24 months. The plan also provides that any withdrawals will result in the suspension of participation in the plan for a period which will depend on the amount of the withdrawal. In any event the suspension will be for a period of at least six months.

Section 1.401-1(b)(1)(ii) of the Income Tax Regulations states that a profit-sharing plan must provide a definite predetermined formula for allocating the contributions made to the plan among the participants and for distributing the funds accumulated under the plan after a fixed number of years, the attainment of a stated age, or upon the prior occurrence of some event such as layoff, illness, disability, retirement, death, or severance of employment. A profit-sharing plan, within the meaning of section 401 of the Code, is primarily a plan of deferred compensation.

Revenue Ruling 54-231, C.B. 1954-1, 150, holds that the term `fixed number of years' is considered to mean at least two years. That Revenue Ruling also holds, in effect, that a plan which permits an employee to withdraw any portion of his share of the employer's contribution 18 months after it has been made (or within any period of less than two years) before the attainment of a stated age or the occurrence of some event such as layoff, illness, disability, retirement, death, or severance of employment, is not a profit-sharing plan within the purview of section 165(a) of the Internal Revenue Code of 1939 (now section 401(a) of the 1954 Code).

Neither section 1.401-1(b)(1)(ii) of the regulations nor Revenue Ruling 54-231 contains an exhaustive listing of events, the occurrence of which may permit distributions of funds from a profit-sharing plan before they have been accumulated for at least two years. Sixty months of participation under the instant plan will result in a significant deferral of compensation. The attainment of such a period of participation is an event within the meaning of section 1.401-1(b)(1)(ii) of the regulations and Revenue Ruling 54-231, and withdrawals may then be permitted.

Accordingly, it is held that the employees' profit-sharing plan will not fail to qualify under section 401(a) of the Code solely because it contains a provision allowing members with no less than 60 months of participation to withdraw all employer contributions, including those which have been made within the last 24 months.