Rev. Rul. 69-4

The Internal Revenue Service has formulated the following guides for determining whether a pension, annuity, profit-sharing, or stock bonus plan integrates with benefits provided by the Social Security Act as amended through 1967.

 Table of Contents

Section 1.401-3(e) of the Income Tax Regulations, as amended by T.D. 6982, C.B. 1968-2, 168, establishes the general basis for the integration of pension, annuity, profit-sharing and stock bonus plans with old-age and survivors insurance benefits provided under the Social Security Act. This Revenue Ruling provides additional rules for the integration of such plans with such benefits. See section 1.401-3(e)(2)(v) of the regulations.

Sec. 2. Definitions

Certain terms used in this Revenue Ruling will have the meaning indicated below:

.01 "Plan" means a pension plan as defined in section 1.401-1(b)(1)(i) of the regulations or an annuity plan as defined in section 1.404(a)-3(a) of the regulations except when used as part of the term "profit-sharing plan."

.02 "Integrated plan" means a plan which is not considered discriminatory by reason of differences in proportionate benefits provided under such plan which favor more highly paid employees because such differences are considered to be offset by old-age and survivors insurance benefits attributable to employer contributions under the Federal Insurance Contributions Act. .03 "Covered compensation" means, with respect to an employee, the amount of compensation with respect to which old-age and survivors insurance benefits would be provided for him under the Social Security Act if for each year until he reaches age 65 his annual compensation is at least equal to the taxable wage base (as defined in section 2.04).

.04 "Taxable wage base" means, with respect to any year, the maximum amount of earnings which may be considered wages for such year under section 3121(a)(1) of the Internal Revenue Code.

.05 "Integration level" means the compensation level below which, under a plan's benefit formula, compensation is excluded in the computation of benefits or contributions.

.06 "Excess plan" means a plan under which an employee's benefits are based only on his compensation in excess of the integration level applicable to him.

.07 "Offset plan" means a plan under which (1) no employee is ineligible to participate because his compensation does not exceed a minimum level, (2) no portion of compensation is excluded in computing benefits, and (3) all the provisions including the benefit rates apply uniformly to all covered employees regardless of compensation, except that an employee's benefit otherwise computed under the plan formula is reduced or offset by a stated percentage of such employee's old-age insurance benefit under the Social Security Act.

Sec. 3. Plan Definitions

.01 Average annual compensation. An excess plan must provide that an employee's average annual compensation is his annual compensation averaged over a period of at least five consecutive years, under a uniform rule which is used for all employees. For this purpose it is acceptable to use for each employee the period of five consecutive years which will produce the highest average for him. If an employee has less than five years of service, the average may be taken over his total period of service. However, it is not acceptable to define average annual compensation as the average of the five highest (nonconsecutive) years within any period of more than five years, or as the annual compensation during any one year, even though such year precedes normal retirement date by more than five years, unless such compensation is limited to that averaged over the five consecutive years which will produce the highest average for each employee.

.02 Covered compensation. As defined in section 2.03, an employee's covered compensation is the amount of compensation with respect to which old-age and survivors insurance benefits would be provided for him under the Social Security Act computed as though for each year until he reaches age 65 his annual compensation is at least equal to the taxable wage base (as defined in section 2.04). A plan may provide that an employee's covered compensation shall be determined on the basis of the Social Security Act as in effect at any time (uniformly determined for all employees) not later than the time at which each individual employee's benefits commence. After the enactment of any amendment to the Social Security Act affecting any employee's covered compensation, a plan may be amended to provide that the covered compensation of each employee shall be determined on the basis of the Social Security Act as so amended. For the purpose of determining the amount of an employee's covered compensation, a plan may provide for the uniform rounding of exact amounts to the nearest whole multiple of a stated dollar amount not greater than $600, or for the uniform use of the age brackets provided in section 1.401-3(e)(2)(iv) of the regulations. Under the Social Security Act as amended by the Social Security Amendments of 1967, the age brackets referred to in the preceding sentence are set forth in Table I, and the exact amounts referred to in the preceding sentence are set forth in Table II.

                               Table I

A plan (other than a profit-sharing, stock bonus or money-purchase plan) is integrated only if:

.01 There are no benefits payable in case of death before retirement. (If there are benefits so payable they must be appropriately adjusted in accordance with section 8.)

.02 The form of retirement benefit is a straight life annuity. (If there are other forms, the benefit payments must be adjusted so that the total value of such other forms is the same as the value of the maximum allowable straight life annuity. (See section 9.))

.03 Normal retirement age is not lower than age 65 for men and not lower than age 60 for women. (If benefits of any kind are payable in case of retirement or severance of employment before normal retirement age such benefits must be appropriately adjusted in accordance with section 10 or 11.)

Sec. 5. Flat-Benefit Excess Plans

A flat-benefit excess plan is integrated if:

.01 The plan's integration level applicable to an employee is:

1 In the case of an active participant, his covered compensation, or a stated dollar amount uniformly applicable to all active participants which does not exceed the covered compensation of any individual who is or may become a participant.

2 In the case of a retired participant, an amount which does not exceed his covered compensation.

.02 The normal annual retirement benefit for any employee cannot exceed the following percentage of his average annual compensation in excess of the applicable integration level:

1 30%, in the case of an employee with 15 or more years of service with the employer at normal retirement age, and

2 2% for each year of service with the employer, in the case of an employee with less than 15 years of service with the employer at normal retirement age.

However, if the integration level of a flat-benefit excess plan is:

.03 In the case of an active participant, a stated dollar amount uniformly applicable to all active participants which exceeds the covered compensation of any individual who is or may become a participant.

.04 In the case of a retired participant, an amount which exceeds his covered compensation,

such plan is integrated if the percentages in section 5.02 are multiplied by a fraction, the numerator of which is, in the case of an active participant, the covered compensation of the oldest individual who is or may become a participant and, in the case of a retired participant, his covered compensation, and the denominator of which is the plan's integration level applicable to the participant.

Example 1. A flat-benefit excess plan in which the integration level is $7,800 a year meets the requirements of section 4 and provides normal annual retirement benefits upon retirement at age 65 with at least 15 years of service equal to 25% of average annual compensation in excess of $7,800. The plan is established effective January 1, 1969, and covers all employees who were hired prior to age 50. The oldest present employee is age 40.

Since it is possible that an employee born in 1919 (age 50 in 1969) could be hired and covered by the plan, the minimum covered compensation from Table I in section 3.02 of any present or potential participant in the plan is $6,600. Such plan is integrated because the rate of benefits does not exceed 25.38% (i.e., 30% x 6,600/7,800).

Example 2. A flat-benefit excess plan in which the integration level is $5,400 a year meets the requirements of section 4 and provides normal annual retirement benefits upon retirement at age 65 with at least 15 years of service equal to 30% of average annual compensation in excess of $5,400. The plan is established effective January 1, 1969, and covers all employees who were hired prior to age 65. The oldest present employee was born in 1904; retirement at age 65 is compulsory. Such plan is integrated because the integration level does not exceed the minimum covered compensation from Table I in section 3.02 of any present or potential participant in the plan.

Effective January 1, 1972, the plan is amended to increase the integration level for then active employees to $6,000. No change is made in benefits for retired employees. Such plan as amended is integrated because the integration level for active employees does not exceed the minimum covered compensation from Table I in section 3.02 of any then active employee (born January 2, 1907, or later), and the integration level for retired employees does not exceed the covered compensation from Table I in section 3.02 of any retired employee. Note that the oldest retired employee was born in 1904, and his covered compensation is $5,400.

Sec. 6. Unit-Benefit Excess Plans

.01 Integration level. The integration level of a unit-benefit excess plan must be either:

1 For all years of service, an amount meeting the requirements of section 5.01, or

2 For any year of service, the taxable wage base for that year (except that $4,800 may be used for years prior to January 1, 1968), or a lesser stated dollar amount, or

3 For all years of service prior to a specified date (that is no later than the end of the year in which the plan or amendment to the plan so providing is effective), the covered compensation of an employee who reaches age 65 in such year (or a lesser stated dollar amount), and for any subsequent year of service, the amount specified in section 6.012.

.02 Plans basing benefits on actual compensation. A unit-benefit excess plan under which an employee's retirement benefit is based on his actual compensation in excess of the plan's integration level is integrated if the rate at which the normal retirement benefit is provided does not exceed 1%.

.03 Plans basing benefits on average annual compensation. A unit-benefit excess plan under which an employee's retirement benefit is based on his average annual compensation in excess of the applicable integration level is integrated if the rate at which the normal retirement benefit is provided does not exceed 3/4%.

.04 Plans with other integration levels. If the integration level of a unit-benefit excess plan for any year of service is a stated dollar amount which exceeds the maximum allowable integration level under section 6.01, such plan is integrated if the rate in section 6.02 or 6.03 (whichever is applicable), is multiplied by a fraction, the numerator of which is the maximum allowable integration level, and the denominator of which is such stated dollar amount.

.05 Applicability of section 5. If a unit-benefit excess plan does not meet the applicable requirements of this section, it is integrated only if it meets the applicable requirements of section 5.

Example. A unit-benefit excess plan which meets the requirements of section 4 provides normal annual retirement benefits equal to 3/4% of average annual compensation in excess of $5,000 multiplied by the number of years of service at retirement date. The plan is established effective December 31, 1968, and covers only employees who have not attained age 65 (i.e., born January 1, 1904, or later).

In accordance with Table I in section 3.02, the covered compensation of any employee covered by the plan is at least $5,400. Such plan is integrated under section 6.03 because the rate of benefits does not exceed 3/4% and the integration level does not exceed $5,400 (the limitation of section 6.011).

Sec. 7. Offset Plans

An offset plan is integrated if the rate at which the offset to any employee's benefit is computed does not exceed:

.01 831/3%, if the amount of the offset to an employee's benefit is computed on the basis of the Social Security Act as in effect in 1968, or

.02 75%, if the amount of the offset to an employee's benefit is computed on the basis of the Social Security Act as in effect at the time at which the offset is first applied.

.03 93.6%, if the amount of the offset to an employee's benefit is computed on the basis of the Social Security Act Amendments of 1958 or 1965, or

.04 96%, if the amount of the offset to an employee's benefit is computed on the basis of the Social Security Act Amendments of 1954, or

.05 104%, if the amount of the offset to an employee's benefit is computed on the basis of the Social Security Act Amendments of 1952, or

.06 112%, if the amount of the offset to an employee's benefit is computed on the basis of the Social Security Act Amendments of 1950.

Sec. 8. Benefits in Case of Death Before Retirement

.01 Reserve or total prior contributions. If a plan satisfies the requirements of section 4 except that it provides benefits in case of death before retirement not exceeding the greater of the reserve or the total prior contributions on a typical individual level annual premium funding method, and provides no other death benefits or life insurance the current cost of which is not includible in the gross income of the employee, such plan is integrated if the benefits or the offset to the benefits does not exceed 8/9 of the limitation which would be applicable if the plan did not provide such death benefits.

.02 Spouse's benefit of one-half of employee's accrued benefit. If a plan satisfies the requirements of section 4 except that, in case of death before retirement, it provides a benefit to the employee's spouse of a straight life annuity in an amount equal to one-half of the employee's accrued benefit (without regard to the age or sex of the employee's spouse), such plan is integrated if the benefits or the offset to the benefits does not exceed 7/8 of the limitation which would be applicable if the plan did not provide such benefits.

.03 Alternative rule. If a plan provides benefits in case of death before retirement, the plan is integrated if the benefits or the offset to the benefits does not exceed the limitation which would be applicable if the plan did not provide such death benefits, reduced to take account of the actuarial value of such benefits (computed solely on the basis of reasonable interest and mortality) in the case where such benefits are most valuable in relation to the retirement benefit.

Sec. 9. Retirement Benefit Forms Other Than a Straight Life Annuity

If a plan satisfies the requirements of section 4 except that benefits are or may be provided in a form other than a straight life annuity, such plan is integrated only if the total value of such form does not exceed the value of the maximum allowable straight life annuity which may be provided under the plan. In the case of the benefit forms described in this section, this requirement is deemed to be satisfied if the benefits or the offset to the benefits does not exceed the limitation which would be applicable if the form of retirement benefit were a straight life annuity, multiplied by the percentage in the following table which corresponds to the form of retirement benefit under the plan:

 Form of Retirement Benefit:                              Percentage

Sec. 10. Early Retirement Under Excess Plans

An excess plan which satisfies the requirements of section 4 except that it provides benefits attributable to employer contributions in case of retirement or severance of employment before age 65 for men or age 60 for women (hereinafter referred to as normal retirement age) is integrated only if such benefits do not exceed the maximum allowable benefits, adjusted in accordance with this section. This section is applicable to plans having a stated retirement age lower than age 65 for men or age 60 for women and to plans permitting such early retirement on an optional basis.

.01 Deferred annuity beginning at normal retirement age. No adjustment is required to the limitation of section 6.02, 6.03, or 6.04 (whichever is applicable) on the benefits provided under a unit-benefit excess plan.

The maximum allowable benefits which may be provided for any employee under a flat-benefit excess plan or a unit-benefit excess plan described in section 6.05 are the maximum normal retirement benefits which may be provided under a flat-benefit excess plan with the same integration level, multiplied by a fraction, the numerator of which is the actual number of years of service with the employer at retirement or severance, and the denominator of which is the number of years of service with the employer that the employee would have if he remained in service until normal retirement age.

.02 Benefits payable before normal retirement age. The benefits cannot exceed the actuarial value determined at the time of early retirement or severance of the maximum benefits that could be provided in accordance with section 10.01. This requirement will be deemed to be satisfied if the benefits on early retirement do not exceed the benefits computed solely on the basis of one of the following:

1 The maximum benefit determined in accordance with section 10.01, reduced by 1/15 for each of the first five years and 1/30 for each of the next five years by which the starting date of the annuity precedes normal retirement age, and reduced actuarially for each additional year thereafter.

2 In the case of a flat-benefit excess plan, the maximum allowable normal retirement benefit, reduced by 1/12 for each of the first five years and 1/24 for each additional year by which the starting date of the annuity precedes normal retirement age.

3 In the case of a plan funded solely by typical individual level premium annuity or insurance contracts, the benefits provided by the reserve.

Example. A unit-benefit excess plan which meets the requirements of section 4 provides normal annual retirement benefits equal to 1% of average annual compensation in excess of $4,800 multiplied by the number of years of credited service not in excess of 30 years. On early retirement or termination of employment, the plan provides a benefit equal to the accrued normal retirement benefit, with payment deferred to age 65.

Such plan does not meet the requirements of section 6.03 because the benefit rate exceeds 3/4%. Therefore, under section 10.01, the deferred early retirement benefit may not exceed 30% of average annual compensation in excess of $4,800, multiplied by the fraction referred to in section 10.01. In the case of employees hired prior to age 35, these benefits exceed the applicable limitation. Such plan is not integrated.

If, for example, the early retirement and termination of employment benefits were equal to the benefits accrued to normal retirement age, multiplied by the ratio that the actual number of years of service of the employee at retirement or severance bears to the total number of years of service he would have had if he had remained in service until normal retirement age, the benefits under this plan would be integrated.

Sec. 11. Early Retirement Under Offset Plans

An offset plan which satisfies the requirements of section 4 except that it provides benefits in case of retirement or severance of employment before age 65 for men or age 60 for women is integrated:

.01 Where the benefits are paid in the form of a deferred annuity commencing at normal retirement age, or where such benefits are not reduced by any offset until normal retirement age, if the amount of the offset to such benefits is determined by applying the maximum allowable offset rate to whichever of the following is uniformly applicable under the plan:

1 The old-age insurance benefit to which the employee would be entitled at normal retirement age based upon the assumption that he will not receive after retirement or severance any income which would be treated as wages for purposes of the Social Security Act, or

2 The old-age insurance benefit to which the employee would be entitled at normal retirement age, based upon the assumption that he will continue to receive until reaching normal retirement age compensation which would be treated as wages for purposes of the Social Security Act at the same rate as he received such compensation at the time of retirement or severance, multiplied by a fraction, the numerator of which is the actual number of years of service with the employer at retirement or severance, and the denominator of which is the number of years of service with the employer that the employee would have if he remained in service until normal retirement age.

.02 Where the benefits are paid in any form other than a deferred annuity commencing at normal retirement age, if the offset does not exceed the actuarial equivalent (which may be determined in accordance with section 10.021 or 10.023) at the time of retirement or severance of the maximum offset determined in accordance with section 11.01.

Example. An offset plan which meets the requirements of section 4 provides normal annual retirement benefits equal to 50% of average annual compensation less 50% of the old-age insurance benefits, as set forth in the Social Security Act Amendments of 1967, to which the employee is, or would on application be, immediately entitled. Upon termination of employment after age 55 an employee who has 15 or more years of service is entitled to a benefit payable at age 65 equal to 50% of average annual compensation less 50% of the old-age insurance benefits as set forth in the Social Security Act Amendments of 1967 to which the employee would be immediately entitled computed as if he received wages from covered employment under OASI until age 65 at a rate no higher than he was receiving just before termination of employment. Such plan is integrated because the offset does not exceed 83 1/3% (section 7.01) times the minimum possible fraction determined in accordance with section 11.012, of 15 years of actual service divided by 25 years of service at age 65, or 60%, which equals 50%.

If only 10 years of service was required for entitlement to termination of employment benefits such plan would not meet the requirements of section 11.012 because the minimum possible fraction determined in accordance with section 11.012 would be 10/20, or 50%, which when multiplied by the 831/3% normal retirement limit would equal a limit on the offset for termination of employment benefits of 412/3% compared to the actual offset of 50%.

Sec. 12. Employee Contributions

A contributory excess plan is integrated notwithstanding the fact that the rate of benefits for each employee is greater than the maximum rate which would otherwise be applicable, if the difference between such rates is property attributable to amounts contributed by the employee. For purposes of this section, amounts contributed by an employee which are applicable to the current cost of insurance or death benefits in excess of the reserve or cash value of a life insurance contract may not be taken into account.

.01 Unit-benefit excess plans basing benefits on actual compensation. In the case of a plan described in section 6.02, the maximum benefit rate for any year in which the employee contributes may be increased by the rate of employee contributions, multiplied by one-eighth, except that if the rate at which interest is actually credited to employee contributions equals at least 41/2%, one-sixth.

.02 Unit-benefit excess plans basing benefits on average annual compensation. In the case of a plan described in section 6.03, the maximum benefit rate for any year in which the employee contributes may be increased by the rate of employee contributions, multiplied by one-twelfth, except that if the rate at which interest is actually credited to employee contributions equals at least 41/2%, one-ninth.

.03 Other excess plans. In the case of other excess plans, the maximum benefit determined in accordance with section 5 or 6 may be increased by the employee's aggregate contributions, multiplied by the appropriate fraction specified in section 12.01 or 12.02.

.04 Payment of benefits before age 65 for men or age 60 for women. The amount by which benefit rates or benefits may be increased under this section is applicable only where payment of benefits commences at age 65 for men and age 60 for women. Accordingly, if the starting date of the annuity precedes age 65 for men or age 60 for women, the amount of any such increase may not exceed the actuarial equivalent (which may be determined in accordance with section 10.021) at such starting date of the amount determined in accordance with this section.

.05 Crediting of interest. For purposes of this section, the rate at which interest is actually credited to employee contributions is the lowest rate at which interest (if any) is, under the terms of the plan, payable in the event of refund of employee contributions for any reason.

Example. A unit-benefit excess plan which is established January 1, 1969, meets all of the requirements of section 4 and provides normal annual retirement benefits for service after the date of inception of the plan equal to 1% of average annual compensation in excess of $7,800 during each year of service subsequent to such date. In case of death or severance of employment before retirement the participant is entitled to a refund of his own contributions plus 41/2% interest. Each participant is required to make regular contributions of 21/4% of his actual compensation in excess of $7,800. Such plan is integrated because the integration level does not exceed the taxable wage base, and the rate of benefit for each year of contributory service does not exceed 1%, which is (a) 3/4% plus (b) the increase for employee contributions from section 12.02 (where the interest actually credited to employee contributions is 41/2%) of 1/9 X 21/4% = 1/4%.

Sec. 13. Money-Purchase Plans

A money-purchase excess plan under which employer contributions are based on compensation in excess of an integration level meeting the requirements of section 6.01 or 6.04 is integrated if:

.01 With respect to any service, the rate of employer contributions with respect to actual compensation does not exceed six times the rate specified in section 6.02 (or, if applicable, section 6.04), or

.02 With respect to service prior to the inception of the plan, the rate of employer contributions with respect to average annual compensation does not exceed six times the rate specified in section 6.03 (or, if applicable, section 6.04) for each year of service prior to the inception of the plan.

Alternatively, the benefits for service prior to the inception of the plan may be provided in accordance with section 6.

For example, under section 13.01, employer contributions may be 6% of each employee's actual compensation in excess of $7,800.

Sec. 14. Profit-Sharing and Stock Bonus Plans

A profit-sharing or stock bonus plan is integrated only if:

.01 The plan's integration level meets the requirements of section 6.01 or 6.04;

.02 The rate at which employer contributions and forfeitures allocated to any participant in any year with respect to his actual compensation for such year in excess of the plan's integration level for such year does not exceed six times the rate specified in section 6.02 (or, if applicable, section 6.04), except that a minimum allocation not exceeding $48 may be provided for each participant in any year that allocations are made;

.03 The plan provides benefits only upon retirement, death, or other separation from service; and

.04 All contributions are allocated on a nondiscriminatory basis when made.

Sec. 15. Step-Rate Excess Plans

If benefits are provided (or employer contributions are made) with respect to all compensation below the integration level, the applicable limitation on the rate of benefits (or employer contributions) with respect to compensation in excess of such integration level may be increased by the rate of benefits (or employer contributions) with respect to compensation below such integration level (hereinafter referred to as "the uniform rate"). No such increase is allowable unless the benefits (or employer contributions) with respect to compensation below such integration level are no less favorable in any respect (including, but not limited to, retirement age, death benefits, form of annuity, eligibility requirements, or rate of vesting) than the benefits (or employer contributions) with respect to compensation in excess of such integration level, except where any differences can be actuarially adjusted in accordance with the applicable provisions of this Revenue Ruling. For purposes of this Revenue Ruling, if such an increase is allowable, the plan (or plans) under which all such benefits are provided (or employer contributions are made) is deemed to be two plans:

.01 A plan under which benefits are provided (or employer contributions are made) with respect to all compensation at the uniform rate, and

.02 A plan under which benefits are provided (or employer contributions are made) with respect to compensation in excess of the plan's integration level at a rate equal to the difference between the rate of benefits (or employer contributions) with respect to compensation in excess of the plan's integration level and the uniform rate.

Only the plan described in section 15.02 is subject to the requirements of this Revenue Ruling.

Example. A flat-benefit excess plan which meets the requirements of section 4 provides normal retirement benefits equal to 10% of the first $3,600 and 40% of the excess over $3,600 of each employee's average annual compensation. Such plan is integrated because the benefit rate of 10% of all compensation may be eliminated for the purpose of testing conformance to integration requirements since the rate applies uniformly to all employees. There remains an excess benefit rate of 30% which meets the requirements of section 5.

Sec. 16. Multiple Integrated Plans

If an employer has more than one plan involving integration, and if any employee is or may be eligible to participate in more than one of such plans, such plans will be considered to be one plan and will be considered to be integrated if the extent of integration of all such plans does not exceed 100%. For purposes of the preceding sentence, the extent of integration of a plan is the ratio (expressed as a percentage) which the actual benefits, benefit rate, offset rate, or employer contribution rate under the plan bears to the limitation applicable to such plan.

Sec. 17. Variable Benefits

The fact that all or a portion of the benefits provided under a plan (other than a plan satisfying the requirements of section 13 or 14) varies with the earnings of a specific fund or with the fluctuations of a specified and generally recognized cost-of-living index will not, in and of itself, prevent such plan from being integrated. The fact that earnings in excess of those assumed in determining employer contributions under a plan (other than a plan satisfying the requirements of section 13 or 14) are applied to increase all or a portion of the benefits provided under such plan and not to reduce future employer contributions will not, in and of itself, prevent such plan from being integrated. A plan containing provisions of the type described in this paragraph is integrated if, at the time of retirement or severance of employment, the value of the benefits provided for any employee under such plan does not exceed the value of the maximum benefits which may be provided for him under an integrated plan of the same type. This requirement will be deemed to be satisfied by a plan which satisfies the requirements of Rev. Rul. 60-337, C.B. 1960-2, 151, PS No. 45, dated January 26, 1945, or section 17.01 or 17.02.

.01 Variable annuity plans. In the case of a unit-benefit excess plan which satisfies the requirements of section 6.02 (or, if applicable, section 6.04), where earnings in excess of those assumed in determining employer contributions with respect to all or a portion of the benefits provided under such plan are allocated in proportion to such benefits, such plan is integrated if the assumed interest rate is not less than 51/2%. If the assumed interest rate is less than 51/2%, such plan is integrated only if the limitation is reduced by 1/15 for each 1/2 percentage point (or fractional part thereof) by which 51/2% exceeds such interest rate.

.02 Cost-of-living plans. In the case of a unit-benefit excess plan which satisfies the requirements of section 6.02 (or, if applicable, section 6.04), such plan is integrated even though all or a portion of the benefits varies with the fluctuations of a specified and generally recognized cost-of-living index.

Sec. 18. Minimum Benefits or Contributions and Rounding of Benefits

A plan is integrated notwithstanding the fact that it provides a minimum benefit attributable to employer contributions which does not exceed $240 a year, or $8 a year for each year of service, or that minimum employer contributions of $48 a year are made with respect to any employee. Any minimum benefit or employer contribution described in the preceding sentence may not be used as a tolerance and may not be taken into account in determining whether larger benefits satisfy the applicable requirements of this Revenue Ruling. The limitations of this section upon minimum benefits or contributions do not apply where (1) there is no minimum compensation requirement for minimum benefits or contributions, and (2) the formula for determining minimum benefits or contributions does not involve integration with old-age and survivors insurance benefits. A plan is integrated notwithstanding the fact that the total monthly benefits for each employee are, under a uniformly applicable rule, increased to the next higher multiple of $10 a month, decreased to the next lower multiple of $10 a month, or rounded to the nearest multiple of $10 a month.

Sec. 19. Applicability

A plan which was not in effect on July 5, 1968, is integrated only if it satisfies in all respects the applicable requirements of section 1.401-3(e)(2) of the regulations, as amended by T.D. 6982, and of sections 3 through 18 of this Revenue Ruling. A plan which was in effect on July 5, 1968, will be considered to be integrated notwithstanding the fact that it does not satisfy such requirements:

.01 Until January 1, 1972, if, on July 5, 1968, and at all times until January 1, 1972, it satisfies in all respects the applicable requirements of any one of the following:

1 Mimeograph 5539, C.B. 1943, 499, as amplified by PS No. 30, dated September 16, 1944, and Part 4(i)(2) of Rev. Rul. 57-163, C.B. 1957-1, 128 at 143-144, or

2 Mimeograph 6641, C.B. 1951-1, 41, as amended by Rev. Rul. 13, C.B. 1953-1, 294; by Rev. Rul. 56-692, C.B. 1956-2, 287; by Rev. Rul. 61-75, C.B. 1961-1, 140; and by Rev. Rul. 68-369, C.B. 1968-29, 172, or

3 Rev. Rul. 67-10, C.B. 1967-1, 84; and

.02 If the benefits for any employee retiring on or after January 1, 1972 (or some earlier specified date), satisfy the requirements of section 20.

For purposes of this section and section 20, Part 2(f) of Rev. Rul. 65-178, C.B. 1965-2, 94, shall be applicable in determining whether a plan was in effect on July 5, 1968.

Sec. 20. Transitional Rules for Certain Plans

.01 Excess plans. An excess plan which was in effect and was integrated on July 5, 1968 (hereinafter referred to as an "existing plan"), will be considered to be integrated after December 31, 1971 (or some earlier specified date), if the benefits for each employee retiring after December 31, 1971 (or such earlier specified date), equal the sum of:

1 Either (1) the benefits to which he would be entitled under an excess plan which satisfies in all respects the applicable requirements of any one of the prior integration rules set forth in section 19.01 and which has the same (or a lesser) benefit rate and the same integration level as the existing plan, multiplied by the percentage of his total service with the employer performed before such specified date, or (2) the benefits (payable as a deferred annuity commencing at normal retirement age) under the existing plan to which he would be entitled if he terminated employment (having satisfied any requirements as to age and service) on such specified date, and

2 The benefits to which he would be entitled under an excess plan which satisfies in all respects the applicable requirements of sections 3 through 18 of this Revenue Ruling, multiplied by the percentage of his total service with the employer performed on and after such specified date.

.02 Offset plans. An offset plan which was in effect and was integrated on July 5, 1968 (hereinafter referred to as an "existing plan"), will be considered integrated after December 31, 1971 (or some earlier specified date), if the amount of the offset to the benefits for each employee retiring after December 31, 1971 (or such earlier specified date), equals the sum of:

1 The amount of the offset to the benefits which would be determined under an offset plan which satisfies in all respects the applicable requirements of any one of the prior integration rules set forth in section 19.01, which has the same (or a lesser) offset rate as the existing plan, and under which the amount of the offset is computed on the basis of the Social Security Act as in effect on the same day as that specified in the existing plan, multiplied by the percentage of his total service with the employer before such specified date, and

2 The amount of the offset to the benefits which would be determined under an offset plan which satisfies in all respects the applicable requirements of sections 3 through 18 of this Revenue Ruling, multiplied by the percentage of his total service with the employer on and after such specified date.

.03 Service with the employer. For purposes of this section, an employee's total service means all service with the employer, plus any additional service (such as with a former employer) for which credit is given under the plan.

.04 Benefit and offset rate. For purposes of sections 20.011 and 20.021, a plan's benefit or offset rate shall be the actual rate at which benefits are provided or the offset is computed, divided by any adjustment required under the provisions of prior integration rules corresponding to sections 8 through 12 of this Revenue Ruling. Thus, for example, the benefit rate of a plan under which the benefit is a 30% annuity for 10 years certain and life thereafter is 331/3 (i.e., 30% / 90%).

.05 Special minimum benefit. A plan which was in effect and was integrated on July 5, 1968, may provide a minimum total benefit for each employee (other than an employee who, at any time prior to retirement or severance, owns directly or indirectly, stock possessing more than 10% of the total combined voting power or value of all classes of stock of the employer) equal to the benefit to which he would be entitled under the plan as in effect on July 5, 1968, if his compensation continued until retirement or severance at the same rate as in calendar year 1967, or during the most recent plan year which ended before July 6, 1968.

The following examples illustrate some of the alternative methods of meeting the requirements of this section:

Example 1. Flat-benefit excess plans. A flat-benefit excess plan in which the integration level is $4,800 and which conforms to the conditions of paragraph 5 of Mimeograph 6641, as amended by Rev. Rul. 61-75, provides a normal retirement benefit of 35% of average annual compensation in excess of $4,800. If the plan will continue to provide a flat-benefit type of benefit, the plan could be amended to conform to the provisions of section 5 of this Revenue Ruling or in one of the following ways:

(1) Provide a benefit equal to the sum of:

(a) With respect to service prior to January 1, 1972, 35% of average annual compensation in excess of $4,800, plus

(b) With respect to service thereafter, 30% of average annual compensation in excess of $4,800, or

(2) Provide a benefit equal to the sum of:

(a) With respect to service prior to January 1, 1972, 35% of average annual compensation in excess of $4,800, plus

(b) With respect to service thereafter, 35% of average annual compensation in excess of $4,800 plus 5% of the first $4,800 of average annual compensation, or

(3) Provide a benefit equal to 30% of average annual compensation in excess of $4,800, subject to a minimum of 35% of average compensation in excess of $4,800 (computed ignoring any change in compensation after 1967) for employees other than any employee who owns more than 10% of the stock of the employer corporation.

Example 2. Flat-benefit excess plans. A flat-benefit excess plan in which the integration level is $6,600 and which was in effect on July 5, 1968, conforms to the conditions of paragraph 5 of Mimeograph 6641, as amended by Rev. Rul. 61-75, and Rev. Rul. 67-10, and provides a normal annual retirement benefit of 27% of average annual compensation in excess of $6,600. Such plan is integrated because, in accordance with Table I in section 3.02, the minimum covered compensation for an employee covered by the plan in 1972 or later is $6,000, and the rate of benefit does not exceed 27.27% (i.e., 30% x 6,000/6,600).

Example 3. Unit-benefit plans. A unit-benefit excess plan which was in effect on July 5, 1968, conforms to the conditions of paragraph 12(b) of Mimeograph 6641, as amended by Rev. Rul. 61-75, and provides a normal annual retirement benefit of 5/6% of average annual compensation in excess of $4,800 multiplied by the number of years of credited service not in excess of 30 years as of retirement date. As of January 1, 1972, the plan is amended to provide a benefit attributable to service after December 31, 1971, that meets the applicable provisions of this Revenue Ruling, and to provide a benefit attributable to service prior to January 1, 1972, equal to the benefit described in the preceding sentence earned to actual retirement date multiplied by the percentage of each employee's total service with the employer that was performed prior to January 1, 1972. Such plan is integrated.

Furthermore, because the plan would have been integrated even without this limit on credited service, if the plan were instead amended to provide a benefit equal to 5/6% of average annual compensation in excess of $4,800 multiplied by the number of years of credited service as of December 31, 1971, not in excess of 30 years, the provisions of this paragraph would also be satisfied with respect to benefits attributable to service prior to January 1, 1972.

Example 4. Unit-benefit plans. A unit-benefit excess plan which was in effect on July 5, 1968, conforms to the conditions of paragraph 12(a) of Mimeograph 6641, as amended by Rev. Rul. 61-75 and Rev. Rul. 67-10, and provides a normal annual retirement benefit equal to 11/4% of actual compensation in excess of the maximum wages covered by the Social Security Act for each year of service prior to January 1, 1966, plus 9/10% of actual compensation in excess of $6,600 for each year of service thereafter. Such plan is integrated.

Furthermore, if the plan were amended to provide a benefit equal to the normal retirement benefit accrued to date of amendment, plus a normal retirement benefit equal to 1% of actual compensation in excess of the taxable wage base (or any lesser stated dollar amount) for each year of service thereafter, the provisions of this section would also be satisfied.

The plan could also be amended to provide a benefit equal to the normal retirement benefit accrued to January 1, 1966, plus a normal retirement benefit equal to 1% of actual compensation in excess of the taxable wage base for each year of service thereafter.

Example 5. Offset plans. An offset plan which was in effect on July 5, 1968, conforms to the conditions of paragraph 15 of Mimeograph 6641, as amended by Rev. Rul. 61-75, and provides only a normal retirement benefit upon retirement at age 65 equal to 40% of average annual compensation less 100% of the old-age insurance benefits to which the employee would have been entitled under the Social Security Amendments of 1958. Such plan could elect to prorate the offset in accordance with section 20.02 or could be amended on or before January 1, 1972, to provide that the offset for old-age insurance benefits will be 75% of the old-age insurance benefits to which the employee is entitled under the Social Security Amendments in effect on the day the employee retires. Alternatively, the reference to the Social Security Amendments could be changed to 1967 and the percentage would then have to be reduced to 831/3%.

Example 6. Profit-Sharing plans. An excess plan which was in effect on July 5, 1968, conforms to the conditions of paragraph 11 of Rev. Rul. 61-75, and provides for employer contributions of 93/8% of actual compensation in excess of $4,800. Employer contributions are allocated to individual employee accounts based on compensation in excess of $4,800; investment earnings are allocated based on account balances. Such plan must be amended on or before January 1, 1972, to reduce the rate of employer contributions applicable to excess compensation to 6%. Excess compensation may be defined as compensation in excess of the taxable wage base, or as a stated dollar amount that does not exceed $7,800. The balance in each employee's account as of January 1, 1972 (or earlier specified date), meets the requirements of section 20.011(2).