Rev. Rul. 70-448

Advice has been requested concerning the application of section 17.02 of Revenue Ruling 69-4, C.B. 1969-1, 118, regarding the integration of pension, annuity, profit-sharing and stock bonus plans with old-age and survivors insurance benefits provide under the Social Security Act under the circumstances described below.

A unit-benefit excess pension plan provides benefits that are initially determined as the largest benefits produced by the application of one of two alternate formulas, each of which involves integration with Social Security benefits. One of the benefit formulas bases benefits on average annual compensation and the other bases benefits on actual compensation. Each formula would satisfy the requirements of Revenue Ruling 69-4 if the benefit determined at retirement date remained unchanged thereafter. The pension plan further provides that regardless of which formula is used initially to determine the benefits, the benefits will vary after retirement with the fluctuations of a specified cost-of-living index.

The question is raised whether, in view of this further provision, the plan is properly integrated.

After the benefits under a plan have been determined, upon retirement or severance of employment, the operation of the plan is the same regardless of which compensation base, whether actual compensation or average annual compensation, was used to determine benefits.

For that reason, section 17.02 of Revenue Ruling 69-4 (which indicates that benefits in a unit-benefit excess plan basing benefits on actual compensation, as distinguished from average annual compensation, may vary with the fluctuations of a specified and generally recognized cost-of-living index) is intended to refer particularly to cost-of-living variations occurring before retirement or severance of employment, with no distinction between compensation bases in the case of variation occurring after either of such events.

It is concluded that the unit-benefit excess plan basing benefits on average annual compensation, in which the benefit payable at retirement or severance of employment is otherwise integrated with benefits under the Social Security Act, will be integrated even though benefits vary after such event with the fluctuations of a specified and generally recognized cost-of-living index. A similar conclusion is applicable in the case of an offset or a flat-benefit excess type of pension plan.

Revenue Ruling 69-4 is hereby amplified.