Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 77-65

1977-1 C.B. 29

Section 105

IRS Headnote

Sick pay exclusion; retired employee; certification of eligibility. A labor union, which maintains and administers a pension fund pursuant to a collective bargaining agreement providing for normal retirement benefits and a union wage continuation plan providing accident and health benefits, may provide the certification required by section 1.105-6(a)(2) of the regulations to an employee who is eligible for wage continuation benefits but elects to receive normal retirement benefits before January 27, 1975. Full Text

Rev. Rul. 77-65

Advice has been requested whether, under the circumstances described below, a labor union may provide the certification dealing with wage continuation plans required by section 1.105-6 of the Income Tax Regulations.

The taxpayer is a member of a labor union that maintains and administers a pension fund established pursuant to a collective bargaining agreement between various employers and the union for the benefit of workers employed by those employers. The union trustees of the fund are authorized to make the rules and regulations as to the employees' eligibility to receive benefits and the determination as to the amount of such benefits. The employer is required to contribute 1x dollars per day to the union pension fund for each person on the company payroll who is represented by the union. The employer has no other liability for payment of retirement benefits other than this contribution.

Retirement benefits are computed in accordance with a formula based upon the union member's age and length of service and the amount of employer contributions to the member's credit. A member may retire at any time after reaching age 50 or completing 20 years of service. Mandatory retirement age is age 60.

The union plan also provides accident and health benefits for its members under a wage continuation plan to which section 105(d) of the Internal Revenue Code of 1954 applies. Accident and health benefits amounting to 60 percent of the employee's current salary would be paid to the member, provided the member has had at least five years of service, should the member become totally and permanently disabled. The benefits are payable regardless of the member's age or length of disability.

In 1974, a union member aged 54 with 31 years of service became totally and permanently disabled. Because the retirement benefits payable for regular retirement exceeded the amount payable under the wage continuation plan (though not by a substantive amount), the member elected to retire under the regular retirement plan rather than under the employer's wage continuation plan.

Section 1.105-6 of the regulations provides, in part, that an employee who retires from work before January 27, 1975, receiving payments under an employer-established plan, which payments were not treated as amounts received under a wage continuation plan for purposes of section 105(d) of the Code, may, as of the date the employee retired, treat such plan as a wage continuation plan to the extent such payments are received prior to mandatory retirement age if certain requirements are met. One of these requirements is that the employer of the retired employee must certify that the employee would have been eligible for wage continuation benefits under the terms of the employer's plan, because of injuries or sickness. Section 1.105-6(a)(2).

In the instant case, the labor union operates the plan and determines the status of its member who receives payments under the plan.

Accordingly, the labor union may provide the certification required by section 1.105-6(a)(2) of the regulations to the effect that, under the terms of the plan, the employee would have been eligible for wage continuation benefits because of injuries or sickness as of the date the employee retired.