Rev. Rul. 56-432

Advice has been requested whether an employees' pension, profit-sharing, or stock bonus plan will meet the requirements of a qualified trust under section 401(a) of the Internal Revenue Code of 1954 if it contains a provision which grants to the employer the status of a preferred creditor with regard to distributions to the participants in the plan.

The particular provision under question in an employees' pension, stock bonus, or profit-sharing plan is the following:

Except as respects any indebtedness owing to the company (i. e., the employer) the interests of participants and their beneficiaries under the plan are not in any way subject to their debts or other obligations and may not be voluntarily or involuntarily sold, transferred, or assigned.

Section 401(a)(2) of the Code provides that a trust forming part of a stock bonus, pension, or profit-sharing plan shall constitute a qualified trust if 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.

For an employees' plan to fail of qualification under section 401(a) of the Code, the diversion of funds of the trust must be for other than the exclusive benefit of the participants. As long as the funds of the trust are used for the exclusive benefit of the employees or their beneficiaries, there can be no prohibited diversion. The repayment of a loan for an employee is for the economic benefit of the employee since it relieves him of a liability. In such a case, the benefit to the creditor is purely incidental. If a trust contained no "spendthrift" clause so that the creditors of an employee could attach the fund, it could not be said that the fund was not for the exclusive benefit of the employees. Thus, the mere fact that the employer is the only person who has that right does not change the result. Similarly, investments in the securities of or transactions with an employer are not considered to be, per se, for the benefit of the employer. See Rev. Rul. 46, C. B. 1953-1, 287.

Accordingly, it is held that an employees' pension, profit-sharing, or stock bonus plan will not fail to meet the requirements of section 401(a) of the 1954 Code merely because it contains a provision whereby, except as to the employer, the rights of the employee under the plan are not subject to the claims of his creditors.