Part I

Section 401.--Qualified pension, profit-sharing, and stock bonus plans

26 CFR 1.401(a)(4)-4: Nondiscriminatory availability of benefits, rights, and features

Rev. Rul. 2004-21

ISSUE

contracts from the plan prior to distribution of retirement benefits are not of inherently

equal or greater value than the purchase rights of highly compensated employees?

Employer M maintains Plan A, a retirement plan that is intended to be a qualified

plan under § 401(a). Plan A provides an incidental death benefit within the meaning of

§ 1.401-1(b)(1)(i) of the Income Tax Regulations for each participant, and holds a life

insurance contract on the life of each participant to fund that incidental death benefit.

Before distributions to a participant under Plan A commence, each participant is offered

the opportunity to purchase the life insurance contract under which the participant is

life insurance contracts covering the lives of highly compensated employees are

compensated employees. In addition, because of these differences in the features of

the life insurance contracts under which they are insured from Plan A are not of

inherently equal or greater value than the rights that highly compensated employees

have to purchase the life insurance contracts under which they are insured.

Section 401(a)(4) provides that, under a qualified retirement plan, contributions

enough proportion of participants who are nonhighly compensated employees.

Section 1.401(a)(4)-1(b)(3) provides that a plan satisfies the requirements of

§ 401(a)(4) only if all benefits, rights and features provided under the plan are made

benefits, rights and features (i.e., optional forms of benefit, ancillary benefits, and other

rights or features) are made available under the plan in a nondiscriminatory manner

only if each benefit, right or feature satisfies the current availability requirement of

§ 1.401(a)(4)-4(b) and the effective availability requirement of § 1.401(a)(4)-4(c). In

general, a benefit, right or feature satisfies the current availability requirement of

that can be expected to have meaningful value. Under § 1.401(a)(4)-4(e)(3)(i), a

the same terms as another right or feature. Under § 1.401(a)(4)-4(e)(3)(iii)(C), the right

employer securities (taking into account, in determining whether different forms of

investment exist, any differences in conversion, dividend, voting, liquidation preference,

or other rights conferred under the security) is a distinct other right or feature. Similarly,

differences in insurance contracts (e.g., differences in cash value growth terms or

different exchange features) that may be purchased from a plan can create distinct

the current availability requirement of § 1.401(a)(4)-4(b) and the effective availability

requirement of § 1.401(a)(4)-4(c). For this purpose, one benefit, right, or feature is of

inherently equal or greater value than another benefit, right, or feature only if, at any

time and under any conditions, it is impossible for any employee to receive a smaller

amount or a less valuable right under the first benefit, right, or feature than under the

To the extent the purchase from Plan A of a life insurance contract by a highly

compensated employee is a distribution alternative with respect to benefits described in

§ 411(d)(6)(A), such a purchase right is an optional form of benefit under Plan A. Even

purchase rights for nonhighly compensated employees because of differences in the life

insurance contracts (analogous to a conversion right applicable to a security). This

purchase right for highly compensated employees does not satisfy the current

availability requirement of § 1.401(a)(4)-4(b) because the right to purchase the contracts

of a type available to the highly compensated employees is not available to any

nonhighly compensated employees, and therefore is not available to a group that

satisfies the requirements of § 410(b). Moreover, under the facts presented, this

purchase right of highly compensated employees cannot satisfy the requirements of

§ 1.401(a)(4)-4 through aggregation with any other optional form of benefit, ancillary

prior to distribution of retirement benefits, to purchase those life insurance contracts

employees to purchase life insurance contracts from the plan prior to distribution of

retirement benefits are not of inherently equal or greater value than the purchase rights

of highly compensated employees.

DRAFTING INFORMATION

The principal authors of this revenue ruling are Larry Isaacs of Employee Plans,

Tax Exempt and Government Entities Division, and Linda Marshall of the Office of the