Page 286

TITLE 26-INTERNAL REVENUE CODE their beneficiaries the corpus and income of the fund accumulated by the trust in accor- dance with such plan; (2) if under the trust instrument it is impos- sible, 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 (within the taxable year or thereafter) used for, or divert- ed to, purposes other than for the exclusive benefit of his employees or their beneficia- ries; (3) if the plan of which such trust is a part satisfies the requirements of section 410 (re- lating to minimum participation standards); and (4) if the contributions or the benefits pro- vided under the plan do not discriminate in favor of employees who are- (A) officers, (B) shareholders, or (C) highly compensated. For purposes of this paragraph, there shall be excluded from consideration employees de- scribed in section 410(b)(2)(A) and (C). (5) A classification shall not be considered discriminatory within the meaning of para- graph (4) or section 410(b) (without regard to paragraph (1)(A) thereof) merely because it excludes employees the whole of whose remu- neration constitutes "wages" under section 3121(a)(1) (relating to the Federal Insurance Contributions Act) or merely because it Is limited to salaried or clerical employees. Nei- ther shall a plan be considered discriminatory within the meaning of such provisions merely because the contributions or benefits of or on behalf of the employees under the plan bear a uniform relationship to the total compensa- tion, or the basic or regular rate of compensa- tion, of such employees, or merely because the contributions or benefits based on that part of an employee's remuneration which is excluded from "wages" by section 3121(a)(1) differ from the contributions or benefits based on employee's remuneration not so ex- cluded, or differ because of any retirement benefits created under State or Federal law. For purposes of this paragraph and para- graph (10), the total compensation of an indi- vidual who is an employee within the mean- ing of subsection (c)(1) means such individ- ual's earned income (as defined in subsection (c)(2)), and the basic or regular rate of com- pensation of such an individual shall be deter- mined, under regulations prescribed by the Secretary, with respect to that portion of his earned income which bears the same ratio to his earned income as the basic or regular compensation of the employees under the plan bears to the total compensation of such employees. For purposes of determining whether two or more plans of an employer satisfy the requirements of paragraph (4) when considered as a single plan, if the amount of contributions on behalf of the em- ployees allowed as a deduction under section 404 for the taxable year with respect to such plans, taken together, bears a uniform rela- tionship to the total compensation, or the basic or regular rate of compensation, of such employees, the plans shall not be considered discriminatory merely because the rights of employees to, or derived from, the employer contributions under the separate plans do not become nonforfeitable at the same rate. For the purposes of determining whether two or more plans of an employer satisfy the re- quirements of paragraph (4) when considered as a single plan, if the employees' rights to benefits under the separate plans do not become nonforfeitable at the same rate, but the levels of benefits provided by the separate plans satisfy the requirements of regulations prescribed by the Secretary. to take account of the differences in such rates, the plans shall not be considered discriminatory merely because of the difference in such rates. (6) A plan shall be considered as meeting the requirements of paragraph (3) during the whole of any taxable year of the plan if on one day in each quarter it satisfied such re- quirements. (7) A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part satisfies the re- quirements of section 411 (relating to mini- mum vesting standards). (8) A trust forming part of a pension plan shall not constitute a qualified trust under this section unless the plan provides that for- feitures must not be applied to increase the benefits any employee would otherwise re- ceive under the plan. (9) In the case of a plan which provides con- tributions or benefits for employees some or all of whom are employees within the mean- ing of subsection (c)(1), a trust forming part of such plan shall not constitute a qualified trust under this section unless, under the plan, the entire interest of each employee- (A) either will be distributed to him not later than his taxable year in which he at- tains the age of 70 V years, or, in the case of an employee other than an owner-employee (as defined in subsection (c)(3)), in which he retires, whichever is the later, or (B) will be distributed, commencing not later than such taxable year, (I) in accor- dance with regulations prescribed by the Secretary, over the life of such employee or over the lives of such employee and his spouse, or (it) in accordance with such regu- lations, over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and his spouse. A trust shall not be disqualified under this paragraph by reason of distributions under a designation, prior to the date of the enact- ment of this paragraph, by any employee under the plan of which such trust is a part, of a method of distribution which does not meet the terms of the preceding sentence. (10) In the case of a plan which provides contributions or benefits for employees some or all of whom are owner-employees (as de- fined in subsection (c)(3))- (A) paragraph (3), the first and second sentences of paragraph (5), and section 410 shall not apply, but- (i) such plan shall not be considered dis- criminatory within the meaning of para- graph (4) merely because the contribu- Page 286