Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 70-28

1970-1 C.B. 86

Sec. 401

IRS Headnote

A prototype pension plan that provides retirement benefits for self-employed individuals through the purchase of certain life insurance contracts will not qualify under section 401 of the Code if it has to be considered with another plan to meet the incidental death benefits requirement.

Full Text

Rev. Rul. 70-28

Advice has been requested regarding the acceptability of the form of the below described prototype pension plan covering self-employed individuals.

The prototype plan provides only such retirement benefits as are furnished through the purchase of ordinary life insurance contracts. However, it requires an adopting employer to simultaneously maintain a second qualified plan covering the same self-employed individuals who participate in the adopted prototype plan, so that when the employer's two plans are considered together, the life insurance benefit will be no greater than 100 times the monthly annuity.

Section 1.401-1(b)(1) of the Income Tax Regulations provides that a qualified pension plan may provide for the payment of incidental death benefits through insurance or otherwise.

Section 1.401-3(f) of the regulations provides that an employer may designate several trusts or plans as constituting one plan intended to qualify under section 401(a)(3) of the Internal Revenue Code of 1954, in which case all of such trusts or plans taken as a whole may meet the requirements of that section.

Revenue Ruling 65-25, C.B. 1965-1, 173, provides that a pension or profit-sharing plan covering self-employed individuals will not qualify under section 401 of the Code if it provides only such retirement benefits as are furnished through the purchase of ordinary life insurance contracts, or similar life insurance contracts providing death benefits greater than 100 times the amount of the monthly income available under such contracts.

Under the provisions of section 601.201(p) of the Statement of Procedural Rules, district directors will, upon request, furnish a written opinion as to the acceptability, for purposes of sections 401(a), 405(a), or 501(a) of the Code, of the form of master and prototype plans designed to include groups of self-employed individuals who may adopt the plan. To be acceptable, the form of a master or prototype plan must contain adequate provisions to satisfy the requirements of the applicable sections of the Code and regulations without the necessity of referring to other documents. The language of section 1.401-3(f) of the regulations, pertaining to two or more employer plans intended to qualify under section 401(a)(3) of the Code, does not encompass master or prototype plans.

Under the prototype plan in this case, it is only at such time as an adopting employer's individual plan is considered together with his adopted prototype plan that a determination can be made whether the requirements of the Code and regulations with respect to incidental death benefits are satisfied. However, standing alone, the prototype plan in this case, like the plan described in Revenue Ruling 65-25, provides only such retirement benefits as are furnished through the purchase of ordinary life insurance.

Accordingly, the form of this prototype plan is not acceptable under section 401 of the Code.