Rev. Rul. 75-481

TABLE OF CONTENTS

Section 1. Purpose

Sec. 2. Definitions and Special Rules

.01 Limitation year

(1) In general

(2) Limitation year other than calendar year

(3) Method of election

(4) Effect of change of limitation year

(5) Limitation year for years prior to effective date

(6) Limitation year for multiemployer plans

.02 Compensation

(1) In general

(2) Compensation in limitation year

(3) Election to use compensation accrued during limitation year

(4) Method of election

Sec. 3. Limitation for Defined Benefit Plans

.01 General limitation

.02 Annual benefit

(1) Benefit attributable to rollover contributions

(2) Form of annual benefit

(3) Employee contributions

(4) Adjustment where benefits begin before age 55

.03 Total annual benefits not in excess of $10,000

.04 Reduction for service less than 10 years

(1) In general

(2) Alternative adjustment

Sec. 4. Limitation for Defined Contribution Plans

.01 General limitation

.02 Annual addition

.03 Repayment of certain distributions

.04 Time annual addition deemed credited

.05 Special election for section 403(b) contracts, etc.

Sec. 5. Cost-of-Living Adjustments

.01 In general

.02 Automatic adjustments

.03 Adjustment for 1976

.04 Application of adjustment to limitation year

Sec. 6. Limitation in Case of Defined Benefit Plan and Defined Contribution Plan for Same Employee

.01 In general

.02 Defined benefit plan fraction

(1) In general

(2) Participant described in section 2004(d)(2) of the Employee Retirement Income Security Act of 1974

.03 Defined contribution plan fraction

Sec. 7. Combining of Plans

.01 Defined benefit plans

.02 Defined contribution plans

Sec. 8. Aggregate of Plans

.01 Affiliated employers

.02 Multiemployer plans

.03 Multiple employer plans

.04 Section 403(b) annuity contracts

.05 Individual retirement accounts

.06 Disqualification of terminated plans

Sec. 9. Records not Available for Past Periods

Sec. 10. Effective Dates

Sec. 11. Determination Letters

Section 1. Purpose

This Revenue Ruling provides rules with respect to the application of section 415 of the Code in those areas where the Service has determined that guidelines are necessary pending the issuance of regulations. Section 415 was added to the Code by section 2004 of the Employee Retirement Income Security Act of 1974 (Pub. Law No. 93-406, 88 Stat. 979), 1974-3 C.B. 148, and is generally effective with respect to years beginning after December 31, 1975. It is to be noted that under section 401(a)(16) of the Code, a trust may not constitute a qualified trust under section 401(a) if the plan of which such trust is a part provides for benefits or contributions which exceed the limitations of section 415. No negative inferences are to be drawn from the omission of rules with respect to any portion of section 415 not discussed in this Revenue Ruling.

Sec. 2. Definitions and Special Rules

.01 Limitation year--

(1) In general--The limitation year with respect to any employer shall be the calendar year.

(2) Limitation year other than calendar year--In lieu of using the calendar year as the limitation year, an employer may elect to use any other twelve-month period. In the case of a group of employers which constitutes a controlled group of corporations (as defined in section 414(b) of the Code as modified by section 415(h)), or which constitutes trades or businesses (whether or not incorporated) which are under common control (as defined in section 414(c) as modified by section 415(h)), all such employers must use the same limitation year and each such employer must make such election by the method described in paragraph (3).

(3) Method of election--The election described in paragraph (2) shall be made by the adoption of a written resolution by the employer. The first such resolution may be adopted at any time before July 1, 1976 and shall not be considered a change in the limitation year described in paragraph (4). A subsequent resolution or a resolution adopted after June 30, 1976 shall be considered to be a change of the limitation year as described in paragraph (4).

(4) Effect of change of limitation year--The limitation year, once established, may be changed by making an election in the manner described in paragraph (3). Any change in the limitation year shall be a change to a twelve-month period commencing with any day within the current limitation year. The limitations of section 415 of the Code shall be applicable with respect to the current limitation year as if no change in the limitation year had occurred and with respect to the first limitation year for which such change is effective. Thus, for example, if in 1980 an employer with a plan using the calendar year as the limitation year elects to change the limitation year in accordance with this paragraph to a limitation year commencing July 1 and ending June 30, the plan must satisfy the requirements of section 415 for both the current limitation year commencing on January 1, 1980 and ending on December 31, 1980, and the next limitation year commencing on July 1 1980 and ending on June 30 1981.

(5) Limitation year for years prior to effective date--The limitation year for all years prior to the effective date of section 415 of the Code shall be the twelve-month period selected as the limitation year for the first limitation year after the effective date of section 415.

(6) Limitation year for multiemployer plans--In the case of a multiemployer plan as defined in section 414(f) of the Code, the limitation year shall be the calendar year unless the plan administrator, as defined in section 414(g) otherwise elects to use a limitation year which is any other twelve-month period in accordance with the rules set forth in paragraph (3) of this subsection. The effect of any change in limitation year shall be as set forth in paragraph (4) of this subsection.

.02 Compensation

(1) In general--The term "compensation with respect to any limitation year means the participant's wages, salaries for professional services, and other amounts received for personal services actually rendered (including, but not limited to, commissions paid salesmen, compensation for services on the basis of percentage of profits, commissions on insurance premiums, tips, and bonuses), and, in the case of a participant who is an employee within the meaning of section 401(c)(1) of the Code the participant's earned income within the meaning of section 401(c)(2). Income from sources without the United States otherwise excluded from gross income under section 911 shall be, for purposes of section 415 and for purposes of this Revenue Ruling, considered to be compensation. Compensation does not include deferred compensation, stock options, and other distributions which receive special tax benefit. H.R. Rep. No. 93-807, 93rd Cong., 2d Sess, 119 (1974).

(2) Compensation in limitation year--The compensation actually paid or made available to a participant within a limitation year shall be the compensation used for purposes of applying the limitations of section 415 of the Code.

(3) Election to use compensation accrued during limitation year--In lieu of using the compensation actually paid or made available to a participant during the limitation year, the employer may elect to use the compensation accrued for an entire limitation year for purposes of applying the limitations of section 415 of the Code. In order for such an election to become effective in the case of a group of employers which constitutes a controlled group of corporations (as defined in section 414(b), and as modified by section 415(h)), or which constitutes trades or businesses (whether or not incorporated) which are under common control (as defined in section 414(c) as modified by section 415(h)), all such employers must make the election to use the compensation accrued with respect to participants for purposes of applying the limitations of section 415.

(4) Method of election--For purposes of paragraph (3), an election shall be made by the adoption of a written resolution by the employer. In the case of a group of employers which constitutes a controlled group of corporations (as defined in section 414(b) of the Code as modified by section 415(h)), or which constitutes trades or businesses (whether or not incorporated) which are under common control (as defined in section 414(c) as modified by section 415(h)), all such employers must use the same method and each employer must make such election by the method described in this paragraph."

Sec. 3. Limitation for Defined Benefit Plans

.01 General limitation

In the case of a defined benefit plan, the projected annual benefit of a participant may not, at any time within the limitation year, exceed the lesser of--

(1) $75,000, or

(2) 100 percent of the participant's average compensation for his high three consecutive years of service.

A participant's projected annual benefit shall be equal to the annual benefit to which such participant would be entitled under the terms of the defined benefit plan in which he is a participant on the assumptions that he continues employment until his normal retirement age (as determined under the terms of the plan), that his compensation continues at the same rate as in effect in the limitation year under consideration until the date of his normal retirement age and that all other relevant factors used to determine benefits under the plan remain constant as of the current limitation year for all future limitation years.

.02 Annual benefit

(1) Benefit attributable to rollover contributions--The annual benefit described in subsection .01 does not include benefits attributable to rollover contributions (as defined in sections 402(a)(5), 403(a)(4), 408(d)(3), and 409(b)(3)(C) of the Code). The annual benefit attributable to such rollover contributions shall be determined on the basis of reasonable actuarial assumptions.

(2) Form of annual benefit--In the case of a defined benefit plan which provides retirement benefits other than in the form of either a straight life annuity or a qualified joint and survivor annuity within the meaning of section 401(a)(11)(G)(iii) of the Code, the annual benefit provided under the plan, for purposes of applying the limitations of subsection .01, shall be adjusted to an equivalent benefit in the form of a straight life annuity on the basis of reasonable actuarial assumptions.

For this purpose, the adjustment factors set forth in section 9 of Revenue Ruling 71-446, 1971-2 C.B. 187, shall be deemed appropriate. For purposes of making the requisite adjustments, any ancillary benefit which is not directly related to retirement income benefits (such as preretirement death benefits) shall not be taken into account.

(3) Employee contributions--In the case of a plan which provides for mandatory employee contributions within the meaning of section 411(c)(2)(C) of the Code, the benefits attributable to such mandatory contributions shall not be taken into account for purposes of applying the limitations of subsection .01. The annual benefit attributable to such mandatory contributions is the annual benefit determined in accordance with the provisions of section 411(c)(2)(B) based on the assumption that the employee continues to make such mandatory contributions at the same rate as in effect during the limitation year under consideration until his normal retirement age. In the case of a defined benefit plan which provides for voluntary employee contributions, such voluntary employee contributions shall be considered as a separate defined contribution plan for purposes of applying the limitations of section 415.

(4) Adjustment where benefits begin before age 55--In the case of a defined benefit plan which provides for a retirement income benefit which begins before age 55, such benefit shall be adjusted to the actuarial equivalent of a benefit commencing at age 55 for purposes of applying the limitation described in paragraph (1) of subsection .01 of this section. Actuarial equivalency for this purpose shall be determined on the basis of reasonable actuarial assumptions.

.03 Total annual benefits not in excess of $10,000--

Notwithstanding the preceding provisions of this section, the benefits payable with respect to a participant under any defined benefit plan shall be deemed not to exceed the limitations of this section if--

(1) The retirement benefits payable with respect to such participant under such plan and under all other defined benefit plans of the employer do not exceed $10,000 for the limitation year or any prior limitation year, and

(2) The employer has not at any time, either before or after the effective date of section 415, maintained a defined contribution plan in which the participant participated.

.04 Reduction for service less than 10 years--

(1) In general--In the case of an employee who has less than 10 years of service, the limitations referred to in subsection .01 and subsection .03 shall be multiplied by a fraction, the numerator of which is the number of years of service with the employer and the denominator of which is 10. For purposes of this paragraph, a year of service shall mean a year of service as defined in section 411(a)(5) of the Code, and regulations prescribed by the Department of Labor (29 CFR Part 2530), determined without regard to section 411(a)(4), provided, however, that years of service not otherwise taken into account under section 411(a)(6)(D) shall not be taken into account in determining years of service under this paragraph.

(2) Alternative adjustment--In lieu of using the adjustment described in paragraph 1 of this subsection the plan administrator may adjust the limitations defined in subsection .01 and subsection .03 by multiplying such limitations by a fraction, the numerator of which is the number of completed months of service with the employer and the denominator of which is 120. For purposes of this paragraph a completed month of service is any month in which the employee is credited with at least 83 hours of service within the meaning of section 410(a)(3)(C) of the Code.

Sec. 4. Limitation for Defined Contribution Plans

.01 General limitation--In the case of a defined contribution plan, the annual addition with respect to a participant's account under such plan in any limitation year to which section 415 of the Code applies may not exceed the lesser of--

(1) $25,000, or

(2) 25 percent of the participant's compensation in the limitation year.

.02 Annual addition--For purposes of subsection .01 the term "annual addition" means the sum of--

(1) Employer contributions made directly, or indirectly (such as, for example, interest paid by the employer on a loan by the plan to the employer at a rate in excess of the prevailing rate of interest),

(2) The lesser of (i) the amount of the employee's contributions in excess of 6 percent of his compensation in the limitation year, or (ii) one-half of the employee's contribution, and

(3) Forfeitures.

For purposes of this subsection, employee contributions under paragraph (2) include mandatory and voluntary contributions but do not include any rollover contributions (as defined in sections 402(a)(5), 403(a)(4), 408(d)(3), and 409(b)(3)(C) of the Code).

.03 Repayment of certain distributions--For purposes of subsection .02 the term "annual addition" does not include repayments of loans or of amounts described in section 411(a)(7)(B) of the Code in accordance with the provisions of section 411(a)(7)(C) and repayments of amounts described in section 411(a)(3)(D). Annual additions shall not include any interest or other penalties paid by the participant on a loan from the plan or with respect to a repayment referred to in the previous sentence unless such interest or penalty payments are credited to his account in accordance with any formula other than the plan's regular formula for crediting investment earnings to the account of plan participants.

.04 Time annual addition deemed credited--An annual addition with respect to a participant's account shall be deemed credited to his account with respect to a limitation year if it is allocated to the participant's account under the terms of the plan as of any date within such limitation year.

.05 Special election for section 403(b) contracts, etc.--This ruling does not provide guidelines for the making of the election described in section 415(c)(4)(D) of the Code. The regulations to be issued under section 415(c)(4)(D) will provide that any such election may be made retroactively.

Sec. 5. Cost-of-Living Adjustments

.01 In General--The dollar limitations set forth in section 415(b)(1)(A) and 415(c)(1)(A) of the Code and, in the case of a participant who separated from service, the amount taken into account under section 415(b)(1)(B), shall be adjusted for increases in the cost of living under regulations prescribed by the Secretary of the Treasury or his delegate.

.02 Automatic adjustments--Until regulations are issued, a plan may not provide for automatic adjustments of the dollar limitations set forth in section 415(b)(1)(A) and 415(c)(1)(A) of the Code.

.03 Adjustment for 1976--The adjustment for cost-of-living changes described in section 415(d) of the Code applicable to 1976 cannot be determined until the cost-of-living index for the last quarter of 1975 is available. At such time the Service will publish the limitations described in section 415(b)(1)(A) and 415(c)(1)(A) as adjusted by the change in the cost-of-living index.

.04 Application of adjustment to limitation year--The dollar limitations set forth in section 415(b)(1)(A) and 415(c)(1)(A) of the Code with respect to a particular limitation year shall be determined as of the last day of such limitation year.

Sec. 6. Limitation in Case of Defined Benefit Plan and Defined Contribution Plan for Same Employee

.01 In general--In any case in which an individual is a participant at any time in both a defined benefit plan and a defined contribution plan ever maintained by the same employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any limitation year may not exceed 1.4. See, however, section 2004(a)(3) of the Employee Retirement Income Security Act of 1974, Pub. Law No. 93-406, 88 Stat. 985, with respect to the computation of this fraction for certain plans described in this subsection which were in existence on September 2, 1974.

.02 Defined benefit plan fraction--

(1) In general--For purposes of this section, the defined benefit plan fraction for any limitation year is a fraction the numerator of which is the participant's projected annual benefit under the plan (determined as of the close of the limitation year) and the denominator of which is the participant's projected annual benefit (determined as of the close of the limitation year) if the plan provided the maximum benefit allowable under section 415(b) of the Code. The term "projected annual benefit" shall have the meaning described in section 3.01 of this Revenue Ruling.

(2) Participant described in section 2004(d)(2) of the Employee Retirement Income Security Act of 1974--In the case of a participant described in section 2004(d)(2) of the Employee Retirement Income Security Act of 1974, Pub. Law No. 93-406, 88 Stat. 987, the defined benefit plan fraction shall not exceed 1.0.

.03 Defined contribution plan fraction--The defined contribution plan fraction for any limitation year is a fraction the numerator of which is the sum of the annual additions to the participant's account in such limitation year and for all prior limitation years, and the denominator of which is the maximum amount of annual additions which could have been made under section 415(c) of the Code for such limitation year and for all prior limitation years. See, however, section 415(e)(4) with respect to special transition rules applicable to certain defined contribution plans.

Sec. 7. Combining of Plans

.01 Defined benefit plans--all defined benefit plans (whether or not terminated) of an employer shall be treated as one defined benefit plan for purposes of applying the limitations of section 415(b), (c), and (e) of the Code.

.02 Defined contribution plans--All defined contribution plans (whether or not terminated) of an employer shall be treated as one defined contribution plan for purposes of applying the limitations of section 415(b), (c), and (e) of the Code.

Sec. 8. Aggregation of Plans

.01 Affiliated employers--In the case of a group of employers which constitutes a controlled group of corporations (as defined in section 414(b) of the Code as modified by section 415(h)) or which constitutes trades or businesses (whether or not incorporated) which are under common control (as defined in section 414(c) as modified by section 415(h)), all such employers shall be considered a single employer for purposes of applying the limitations of section 415.

.02 Multiemployer plans--Multiemployer plans as defined in section 414(f) of the Code shall not be aggregated with other multiemployer plans for purposes of applying the limitations of section 415. However, in the case of an employer who maintains both a plan which is not a multiemployer plan and a multiemployer plan, the plan which is not a multiemployer plan shall be aggregated with the multiemployer plan to the extent that the benefits provided under the multiemployer plan are provided by such employer with respect to a participant. The benefits provided by an employer under such multiemployer plan shall be deemed equal to the excess of the benefit provided under the multiemployer plan over the benefit which would otherwise be provided under the multiemployer plan if the participant had no service with such employer.

For purposes of this paragraph, the limitation year used where aggregation is required shall be the limitation year of the employer. Thus, a multiemployer plan must satisfy the requirements of section 415 of the Code with respect to its limitation year and, when aggregated with other plans of an employer, the plans so aggregated must also satisfy the requirements of this Revenue Ruling with respect to the employer's limitation year. If the aggregation required hereunder causes the limitations of section 415 to be exceeded, a multiemployer plan will generally be disqualified last. Accordingly, where aggregation causes the limitations of section 415 to be exceeded, a multiemployer plan will not generally be disqualified.

.03 Multiple employer plans--in the case of a multiple employer plan described in section 413(c) of the Code, other than a multiemployer plan as defined in section 414(f), such a multiple employer plan shall be aggregated with all other such plans which an employer maintains and with all other plans maintained by such employer.

.04 Section 403(b) annuity contracts--Except in the case of a section 403(b) annuity contract as to which a participant has made an election under section 415(c)(4)(D) of the Code to have the rules of section 415(c)(4)(C) apply, a section 403(b) annuity contract shall be treated as a defined contribution plan maintained by the employer with respect to which the participant has the control required under section 414(b) or (c) as modified by section 415(h). Thus, for example, in the case of a hospital which provides section 403(b) annuity contracts and also provides retirement benefits under a qualified pension plan, the section 403(b) annuity contracts shall not be aggregated with the retirement benefits under the qualified pension plan with respect to any participant unless (1) such participant is in control of the hospital within the meaning of section 414(b) or (c), as modified by section 415(h); or (2) the participant has made an election under section 415(c)(4)(D) to have the rules of section 415(c)(4)(C) apply. Similarly, if a doctor is employed by an educational institution which provides him with a section 403(b) annuity contract and maintains a private practice as a shareholder owning at least 50 percent of a professional corporation, any qualified plan of the professional corporation must be aggregated with the section 403(b) annuity contract. If the aggregation of a section 403(b) contract and a qualified plan causes the limitations of section 415 to be exceeded, the exclusion allowance under section 403(b) will be adjusted first to the extent necessary to satisfy the limitations of section 415.

.05 Individual retirement accounts--Any participant in an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b), or an individual retirement bond described in section 409, shall be deemed to be sole owner of such account, annuity or bond. An individual retirement account, individual retirement annuity or individual retirement bond shall be aggregated with other qualified plans of an employer only if the participant in such account, annuity or bond, and plan has the control required under section 414(b) and (c), as modified by section 415(h) of such employer.

.06 Disqualification of terminated plans--In the case of two or more plans (one or more of which has been terminated) which cause the limitations of section 415 of Code to be exceeded, the terminated plans shall be disqualified last.

Sec. 9. Records not Available for Past Periods

In the case of a defined contribution plan, the plan administrator may, in lieu of computing the defined contribution plan fraction in the first limitation year to which section 415 of the Code applies by the method described in subsection .03 of section 6, deem such fraction to be equal to a fraction the numerator of which is the sum of the participant's account balance as of the valuation date under the plan immediately preceding the publication of this ruling and any addition made to such participant's account after such valuation date, and the denominator of which is the product of the maximum allowable annual addition within the meaning of section 415(c) for such limitation year and the participant's number of years of service with the employer. For purposes of this section, a year of service shall mean a year of service as defined in section 411(a)(5), and regulations prescribed by the Department of Labor (29 CFR Part 2530), determined without regard to section 411(a)(4), provided, however, that years of service not otherwise taken into account under section 411(a)(6)(D) shall not be taken into account in determining years of service under this section.

Sec. 10. Effective Dates

Section 415 of the Code is effective for plan years commencing after December 31, 1975. With respect to a defined contribution plan whose plan year does not coincide with the limitation year, the limitation described in section 415(c) shall be applied only to those additions which are allocated after the effective date of section 415 to such plan. This ruling is effective immediately with respect to determinations made under section 415.

Sec. 11. Determination Letters

With respect to plans of employers which may have to be aggregated with section 403(b) annuity contracts as provided in subsection .04 of section 8, each determination letter issued by the Service with respect to any such plan shall state that such letter is not a determination as to the effect that such plan may have on the exclusion allowance under section 403(b) of the Code.