Rev. Rul. 70-173

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in Revenue Ruling 54-398, C.B. 1954-2, 239. The question presented is whether a plan may meet the requirements of section 401(a) of the Internal Revenue Code of 1954 if it does not grant employees the right to designate their own beneficiaries.

An employer established a pension plan containing a provision that, in the event of a participant's death, all benefits payable under the plan will be paid to the participant's spouse, if living, or otherwise to the executor or administrator of the participant's estate.

Section 401(a) of the Code provides that a qualified plan must be for the exclusive benefit of the employer's employees or their beneficiaries.

Section 1.401-1(b)(4) of the Income Tax Regulations provides that the term "beneficiaries" of an employee within the meaning of section 401(a) of the Code includes "the estate of the employee, dependents of the employee, persons who are the natural objects of the employee's bounty, and any persons designated by the employee to share in the benefits of the plan after the death of the employee."

The definition of the term "beneficiaries" in section 1.401-1(b)(4) of the regulations does not intend that every participant must necessarily be given an unrestricted right to designate his beneficiaries. Otherwise, it would have been unnecessary to enumerate the classes of beneficiaries since the phrase "any persons designated by the employee" would have been sufficient in itself to accomplish that purpose.

Although the plan in this case specifies the persons who may become beneficiaries upon the death of an employee-participant, the persons so specified are included in the definition of the term "beneficiary" contained in section 1.401-1(b)(4) of the regulations. Accordingly, it is held that the plan does not fail to qualify merely because it does not grant the employees the right to designate their own beneficiaries.

Revenue Ruling 54-398 is hereby superseded since the position set forth therein is incorporated in this Revenue Ruling.