involving other faculty plans providing portability that are an alternative to such state retirement system. The procedures for adapting these structures to any changes in the labor or tax law requirements are unclear. (f) The multiple types of plans at many educational institutions often have varying features (based on practices in the different employee markets, historical development, provisions of state law, etc.) that do not seem significant in assuring lower-paid employees a generally comparable level of benefits to those provided for higher-paid employees, but that present substantial difficulties in valuation for comparability purposes. We suggest that the application of a general nondiscrimination policy to educational organizations might appropriately disregard variations among plans with respect to such features as the following: (1) variations in vesting provisions within the minimum standards provided by Internal Revenue Code Section 411; (ii) variations in the rate of required contributions by employees, provided that the rate of contributions by the employer and the coverage is not discriminatory; and (iii) variations in optional forms of payment, provided that the options available under any particular plan are all of equivalent value. (g) The level of retirement benefits provided by a defined contribution plan often seems inadequate in dealing with the special problems for colleges and universities in adjusting their faculty personnel requirements by proposing selective early retirement for particular employees. At a minimum, contributions at termination of employment that do not exceed the limitations provided by Internal Revenue Code Section 415(c)(4)(A) should not be regarded as discriminatory. (h) An educational institution should be permitted to exclude from plan coverage any employee who is enrolled in a program leading to the grant of a degree by the institution. IRA within 60 days after receipt under vided for determining whether sev SECTION 1. PURPOSE This revenue ruling provides guide- not transfer the life insurance contract However, notwithstanding the do not constitute an exclusive list of SEC. 2. BACKGROUND .01 Section 410(b) of the Internal .02 Section 1.410(b)-1(d)(3)(i) of .03 Section 401(a)(4) of the Code .04 Section 401(a)(5) of the Code not be considered discriminatory. Section 410 within the meaning of sections 401 .05 Section 401(a)(5) of the Code also provides that several plans of an SEC. 3. GENERAL RULE .01 General Rule-Several plans. Section 410 plan providing benefits for an owneremployee may not provide contribu tions or benefits for employees that are less favorable than contributions or benefits for owner-employees. .02 Normalized Employer-Provided Benefits defined-For purposes of this revenue ruling. Normalized Employer Provided Benefits are the flat benefits or unit benefits computed under sec tion 4, normalized in accordance with section 5 to reflect the value of an an nuity for the life of the participant commencing at age 65 with no death benefits and no other ancillary bene fits and to reflect a difference in vesting provisions among the plans being considered. .03 Actual and Adjusted Employer Contributions defined— entitled at each possible retirement age based on the assumption that he or she continued to earn annually until such age the same rate of compensa tion as in the current year. This com putation is made without regard to any benefit attributable to voluntary employee contributions. See section 411(d)(5) of the Code. These projected benefits are expressed as the actuarial equivalent amount of plan benefit commencing at age 65. and the most valuable projected benefit is selected. The employer-provided portion of the participant's most valuable projected benefit is the total benefit reduced by the projected benefit at age 65 attri butable to mandatory employee contributions that would be made to the date of the most valuable projected benefit. (2) Defined contribution plans-In the case of a defined contribution plan that provides a pre-retirement death benefit not less than the account balance, the participant's normalized flat benefit is determined as the amount purchasable as a life annuity commencing at age 65, by the ac cumulation, using a reasonable mor (1) Defined contribution plans-In the case of a defined contribution plan, the Actual Employer Contributions are the employer contributions allocated to the account of a partici. pant (not including forfeitures, even if used to reduce employer contribu tions) and the Adjusted Employer Contributions are the sum of the employer contributions and forfeitures allocated to the account of the partici-tality and interest rate, of both (a) the pant. (2) Defined benefit plans-In the case of a defined benefit plan the Actual and Adjusted Employer Con. tributions are identical. Such contributions are the annual level dollar contributions from the date of initial participation in the plan to the latest of 65, current age, or the normal retirement age to fund the normalized flat benefit described in section 3.02. These contributions must be determined using solely reasonable interest and mortality assumptions. SEC. 4. LEVEL OF EMPLOYER .01 Flat benefit basis (1) Defined benefit plans-In the case of a defined benefit plan the flat benefit used for testing discrimination is the employer-provided portion of the participant's most valuable projected benefit. The participant's most valuable projected benefit is deter mined by projecting the accrued benefit to which the participant would be participant's account balance in the duced by forfeitures, future Adjusted Employer Contributions are X% per year. .02 Unit benefit basis For either a defined benefit or defined contribu tion plan, the unit benefit may be determined by dividing the flat benefit computed as described in subsection .01 by the years of service the participant would have at the age at which the flat benefit was determined. Service must be determined on a reasonable and consistent basis. SEC. 5. NORMALIZING .01 General Rule-In the case of a defined benefit plan providing ancillary benefits, the flat benefit described in section 4.01(1) must be normalized by multiplying such flat benefit by the factors described in subsections .02. .03..04, and .05 in succession. .02 Form of annuity-If the plan provides benefits in a form other than as a single life annuity, the adjustment factor is the ratio of the present value of benefits under such form to the present value of benefits under a life annuity. The reciprocals of the factors found in section 9 of Rev. Rul. 71-446 may be used for this purpose. .03 Pre-retirement death benefitIf the plan provides for pre-retirement death benefits. the adjustment factor is the ratio of the present value of death benefits and retirement benefits to the present value of retirement benefits. The reciprocals of the factors used in section 8 of Rev. Rul. 71-446 may be used for this purpose. .04 Disability benefit (1) If the plan provides a qualified disability benefit (as defined in section 411(a)(9) of the Code), commencing at disability and payable for life, or until recovery from disability before normal retirement age. and such benefit is payable only for the period of time when the participant is eligible for and receives disability benefits under the Social Security Act, the disability adjustment factor is 1.11. (2) If the plan provides any other form of disability benefit. such benefit shall be considered under section 4.01 as a retirement benefit. .05 l'esting-If the plans being compared provide for different rates of vesting, the level of benefits may require adjustment by a vesting adjust ment factor. Section and 2: Cude provides for adjustments in such a situation. However, until regulations are adopted under this section, see Rev. Rul. 74-166. SEC. 6. IMPUTING SOCIAL .01 In general-Except as provided in subsections .04 and .05. if the plans of an employer, when considered as a unit, discriminate in favor of the prohibited group, this discrimination may be eliminated by considering employer-provided social security benefits as Normalized Employer-Provided Benefits or as both Actual and Adjusted Employer Contributions. This section provides rules for measuring the value of the employer-provided social security benefits or contribu tions. Subsections .02 and .03 provide rules for measuring the value of social security in testing whether plans discriminate in favor of a participant who is not an owner-employee. Subsection .04 provides rules for measuring the value of social security in testing whether plans discriminate in favor of an owner-employee. If social security benefits or contributions are imputed. they must be imputed for all individuals in the same manner. .02 Imputing social security bene fits (1) Flat benefits-In the case of a plan testing for discimination on a flat benefit basis, employer-provided social security benefits may be deter mined under either (A) or (B) below. (A) The imputed social security benefits equal 371⁄2 percent of a participant's highest five-year average compensation. to the extent such com. pensation does not exceed the partici pant's covered compensation. For a participant with less than 15 years of service at expected retirement age, this amount should be reduced to 21⁄2 per cent per year of service. Covered compensation in any plan year will be determined in accordance with the rules set forth in section 3.02 of Rev. Rul. 71-446. as clarified by Rev. Rul. 7892. 1978-1 C.B. 118. (B) The imputed social security benefits equal 83% percent of the participant's primary insurance amount. determined using the same assumptions that are used to compute the flat benefit under section 4.01. (2) Unit benefits-In the case of a plan testing for discrimination on a unit benefit basis, employer-provided social security benefits may be deter. mined under either (A) or (B) below. (A) The imputed social security benefits equal 1.4 percent of compen sation in any year to the extent such compensation does not exceed the taxable wage base for the calendar year within which the plan year ends. (B) The imputed social security benefits equal the amount determined under paragraph (1) divided by the participant's projected years of service as used in section 4.02. .03 Imputing social security contributions-Both actual and adjusted employer contributions to social security for a plan year are deemed to be 7% of the participant's compensation in that year to the extent that such compensation does not exceed the taxable wage base for the calendar year within which the plan year ends. .04 Discrimination in favor of an owner-employee For purposes of testing whether several plans discriminate in favor of an owner-employee, (1) if such owner-employee partici. pates in a defined benefit plan, social security benefits may not be taken into account, and (2) if such owner-employee partici. pates in a defined contribution plan. social security benefits may only be taken into account if the requirements of section 401(d)(6) are satisfied. .05 Multiple integration-This subsection only applies in the case where there is some participant covered in one or more of the combina. tion of plans being tested for dis crimination who is covered under another plan (not in the combination) maintained by the employer in which social security must be imputed for that plan to be nondiscriminatory (i.e.. an integrated plan). In this case. the amount of social security benefits or contributions imputed under subsections .02 and .03 is multiplied for Section 410 each participant by the multiple inte gration factor that is lowest for any participant. The multiple integration factor is equal to the excess. if any of the number 1 over the sum of the inte gration utilization factors for all other plans in which this individual partici pates. The integration utilization factor is the ratio of (a) the lowest amount of social security benefits or contributions needed to be imputed for that plan to be nondiscriminatory. to (b) the maximum amount that may be imputed under this section. SEC. 7. REASONABLE .01 For purposes of this revenue ruling, all computations must be based on reasonable actuarial assumptions. Although the assumptions used for every purpose need not be identi cal, they must not be applied in an inconsistent manner so as to distort the results. .02 The reasonableness of the interest rate is determined under the facts and circumstances. For purposes of this revenue ruling, an interest rate not less than 5 percent nor more than 6 percent will automatically be considered reasonable. SEC. 8. SCOPE OF REVENUE This revenue ruling considers only -whether the amount of benefits or contributions are discriminatory in ongo'ing plans. However, other aspects of discrimination could nonetheless exist. For example, in the case of two plans each providing full vesting after 10 years service, more rapid vesting may be needed to satisfy the requirements of section 411(d)(1) of the Code. See Rev. Proc. 76-11, 1976-1 C.B. 550. The adjustment described in section 5.05 adjusts for a difference in vesting schedules but does not consider the minimum vesting necessary to preclude discrimination. SEC. 9. EXAMPLE .01 Facts-Employer M maintains a defined benefit and a defined con. tribution pension plan in 1981. Neither plan permits employee con. tributions. |