REVENUE RULE 94-62

1994-2 C.B. 164, 1994-40 I.R.B. 4.

Internal Revenue Service
Revenue Ruling

DIVERSIFICATION REQUIREMENTS FOR VARIABLE PRODUCTS

Published: October 3, 1994

Section 817. - Treatment of Variable Contracts, 26 CFR 1.817-5 Diversification requirements for variable annuity, endowment, and life insurance contracts.

Diversification requirements for variable products. This ruling defines eight specific categories and one general category of arrangements that are "qualified retirement or pension plans" for purposes of section 1.817- 5(f)(3)(iii) of the regulations.

This revenue ruling lists arrangements that qualify as a "qualified pension or retirement plan" for purposes of s 1.817-5(f)(3)(iii) of the Income Tax Regulations.

BACKGROUND

Under section 817(h) of the Internal Revenue Code, a segregated asset account upon which a variable annuity or life insurance contract is based must be adequately diversified in order for the variable contract to be treated as an annuity under s 72 or as a life insurance contract under s 7702. Section 817(h)(4) and s 1.817-5(f) provide that in certain cases diversification may be satisfied under a "look-through" rule. If a "look-through" rule applies with respect to a beneficial interest in a regulated investment company, for example, the diversification requirements are applied by taking into account the assets held by the regulated investment company. One of the requirements for applying the "look-through" rule under s 1.817-5(f)(2)(i) is that all of the beneficial interests in a regulated investment company, partnership or trust be held by one or more insurance companies. In determining whether this requirement is satisfied, s 1.817-5(f)(3)(iii) provides that beneficial interests held by the trustee of a qualified pension or retirement plan are disregarded.

HOLDING

Solely for purposes of s 1.817-5(f)(3)(iii), the term "qualified pension or retirement plan" includes the following arrangements:

1. A plan described in s 401(a) that includes a trust exempt from tax under s 501(a);

2. An annuity plan described in s 403(a);

3. An annuity contract described in s 403(b), including a custodial account described in s 403(b)(7);

4. An individual retirement account described in s 408(a);

5. An individual retirement annuity described in s 408(b);

6. A governmental plan within the meaning of s 414(d) or an eligible deferred compensation plan within the meaning of s 457(b);

7. A simplified employee pension of an employer that satisfies the requirements of s 408(k);

8. A plan described in s 501(c)(18);

9. Any other trust, plan, account, contract, or annuity that the Internal Revenue Service has determined in a letter ruling to be within the scope of s 1.817-5(f)(3)(iii).

DRAFTING INFORMATION

The principal author of this revenue ruling is Laurie D. Lewis of the Office of Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling contact Donald J. Drees on (202) 622- 3970 (not a toll-free call).

Rev. Rul. 94-62, 1994-2 C.B. 164, 1994-40 I.R.B. 4.