Rev. Rul. 68-159

Advice has been requested whether a provision in a pension plan permitting a retired employee to authorize the trustee to deduct and pay union dues from his monthly pension benefit will adversely affect the qualification of the plan under section 401(a) of the Internal Revenue Code of 1954.

An employer established a trusteed pension plan intended to qualify under section 401(a) of the Code. The plan provides that a retired employee may authorize the deduction of monthly union dues from the monthly pension otherwise payable to him and direct that such dues be remitted to the union.

Section 401(a)(2) of the Code provides that a trust forming part of a stock bonus, pension, or profit-sharing plan shall not constitute a qualified trust unless it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be used for, or diverted to, purposes other than for the exclusive benefit of the employees or their beneficiaries.

Section 1.401-1(b)(1)(i) of the Income Tax Regulations states that a qualified pension plan is a plan established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits for his employees over a period of years, usually for life, after retirement. This section also provides that a plan is not a pension plan if it provides for the payment of benefits not customarily included in a pension plan.

The plan provision in this case merely permits a retired employee to authorize the trustee to act as his agent in paying to the union a part of the monthly benefit to which he is entitled. Under the circumstances the provision does not permit either the payment of benefits not customarily included in a pension plan, within the meaning of section 1.401-1(b)(1)(i) of the regulations, or a diversion within the meaning of section 401(a)(2) of the Code. Rather, part of the employee's monthly benefits are being used, at his request, to satisfy his obligation to pay union dues. See Revenue Ruling 56-432, C.B. 1956-2, 284, which states that there can be no prohibited diversion as long as the funds of the trust are used for the exclusive benefit of the employees or their beneficiaries.

Accordingly, the provision permitting a retired employee to authorize the trustee to deduct and pay union dues from his monthly pension payments will not cause the instant plan to fail to qualify under section 401(a) of the Code.