Brief Case
Pension Resource

Treas. Reg. § 1.401-1

Qualified pension, profit-sharing, and stock bonus plans.
eCFR editorial change effective 2020-05-28 · current · last amended by T.D. 9898, 85 FR 31967, May 28, 2020
PrintCompare datesAsk AI about this sectionOfficial source ↗
Back to current
(a) Introduction.
(1) Sections 401 through 405 relate to pension, profit- sharing, stock bonus, and annuity plans, compensation paid under a deferred-payment plan, and bond purchase plans. Section 401(a) prescribes the requirements which must be met for qualification of a trust forming part of a pension, profit-sharing, or stock bonus plan.
(2) A qualified pension, profit-sharing, or stock bonus plan is a definite written program and arrangement which is communicated to the employees and which is established and maintained by an employer—
(i) In the case of a pension plan, to provide for the livelihood of the employees or their beneficiaries after the retirement of such employees through the payment of benefits determined without regard to profits (see paragraph (b)(1)(i) of this section);
(ii) In the case of a profit-sharing plan, to enable employees or their beneficiaries to participate in the profits of the employer's trade or business, or in the profits of an affiliated employer who is entitled to deduct his contributions to the plan under section 404(a)(3)(B), pursuant to a definite formula for allocating the contributions and for distributing the funds accumulated under the plan (see paragraph (b)(1)(ii) of this section); and
(iii) In the case of a stock bonus plan, to provide employees or their beneficiaries benefits similar to those of profit-sharing plans, except that such benefits are distributable in stock of the employer, and that the contributions by the employer are not necessarily dependent upon profits. If the employer's contributions are dependent upon profits, the plan may enable employees or their beneficiaries to participate not only in the profits of the employer, but also in the profits of an affiliated employer who is entitled to deduct his contributions to the plan under section 404(a)(3)(B) (see paragraph (b)(1)(iii) of this section).
(3) In order for a trust forming part of a pension, profit-sharing, or stock bonus plan to constitute a qualified trust under section 401(a), the following tests must be met:
(i) It must be created or organized in the United States, as defined in section 7701(a)(9), and it must be maintained at all times as a domestic trust in the United States;
(ii) It must be part of a pension, profit-sharing, or stock bonus plan established by an employer for the exclusive benefit of his employees or their beneficiaries (see paragraph (b)(2) through (5) of this section);
(iii) It must be formed or availed of for the purpose of distributing to the employees or their beneficiaries the corpus and income of the fund accumulated by the trust in accordance with the plan, and, in the case of a plan which covers (as defined in paragraph (a)(2) of § 1.401-10) any self-employed individual, the time and method of such distribution must satisfy the requirements of section 401(a)(9) with respect to each employee covered by the plan;
(iv) It must be impossible under the trust instrument at any time before 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 used for, or diverted to, purposes other than for the exclusive benefit of the employees or their beneficiaries (see § 1.401-2);
(v) It must be part of a plan which benefits prescribed percentages of the employees, or which benefits such employees as qualify under a classification set up by the employer and found by the Commissioner not to be discriminatory in favor of certain specified classes of employees (see § 1.401-3);
(vi) It must be part of a plan under which contributions or benefits do not discriminate in favor of certain specified classes of employees (see §§ 1.401(a)(4)-0 through 1.401(a)(4)-13);
(vii) It must be part of a plan which provides the nonforfeitable rights described in section 401(a)(7) (see § 1.401-6);
(viii) If the trust forms part of a pension plan, the plan must provide that forfeitures must not be applied to increase the benefits any employee would receive under such plan (see § 1.401-7);
(ix) It must, if the plan benefits any self-employed individual who is an owner-employee, satisfy the additional requirements for qualification contained in section 401(a)(10) and (d).
(4) For taxable years beginning after December 31, 1962, self-employed individuals may be included in qualified plans. See generally § 1.401-10.
(b) General rules. (1)(i) A pension plan within the meaning of section 401(a) is a plan established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits to his employees over a period of years, usually for life, after retirement. Retirement benefits generally are measured by, and based on, such factors as years of service and compensation received by the employees. The determination of the amount of retirement benefits and the contributions to provide such benefits are not dependent upon profits. Benefits are not definitely determinable if funds arising from forfeitures on termination of service, or other reason, may be used to provide increased benefits for the remaining participants (see § 1.401-7, relating to the treatment of forfeitures under a qualified pension plan). A plan designed to provide benefits for employees or their beneficiaries to be paid upon retirement or over a period of years after retirement will, for the purposes of section 401(a), be considered a pension plan if the employer contributions under the plan can be determined actuarially on the basis of definitely determinable benefits, or, as in the case of money purchase pension plans, such contributions are fixed without being geared to profits. A pension plan may provide for the payment of a pension due to disability and may also provide for the payment of incidental death benefits through insurance or otherwise. However, a plan is not a pension plan if it provides for the payment of benefits not customarily included in a pension plan such as layoff benefits or benefits for sickness, accident, hospitalization, or medical expenses (except medical benefits described in section 401(h) as defined in paragraph (a) of § 1.401-14).
(ii) A profit-sharing plan is a plan established and maintained by an employer to provide for the participation in his profits by his employees or their beneficiaries. The plan must provide a definite predetermined formula for allocating the contributions made to the plan among the participants and for distributing the funds accumulated under the plan after a fixed number of years, the attainment of a stated age, or upon the prior occurrence of some event such as layoff, illness, disability, retirement, death, or severance of employment. A formula for allocating the contributions among the participants is definite if, for example, it provides for an allocation in proportion to the basic compensation of each participant. A plan (whether or not it contains a definite predetermined formula for determining the profits to be shared with the employees) does not qualify under section 401(a) if the contributions to the plan are made at such times or in such amounts that the plan in operation discriminates in favor of officers, shareholders, persons whose principal duties consist in supervising the work of other employees, or highly compensated employees. For the rules with respect to discrimination, see §§ 1.401-3 and 1.401(a)(4)-0 through 1.401(a)(4)-13. A profit-sharing plan within the meaning of section 401 is primarily a plan of deferred compensation, but the amounts allocated to the account of a participant may be used to provide for him or his family incidental life or accident or health insurance. See §§ 1.72-15, 1.72-16, and 1.402(a)-1(e) for rules regarding the tax treatment of incidental life or accident or health insurance.
(iii) A stock bonus plan is a plan established and maintained by an employer to provide benefits similar to those of a profit-sharing plan, except that the contributions by the employer are not necessarily dependent upon profits and the benefits are distributable in stock of the employer company. For the purpose of allocating and distributing the stock of the employer which is to be shared among his employees or their beneficiaries, such a plan is subject to the same requirements as a profit-sharing plan.
(iv) As to inclusion of full-time life insurance salesmen within the class of persons considered to be employees, see section 7701(a)(20).
(2) The term “plan” implies a permanent as distinguished from a temporary program. Thus, although the employer may reserve the right to change or terminate the plan, and to discontinue contributions thereunder, the abandonment of the plan for any reason other than business necessity within a few years after it has taken effect will be evidence that the plan from its inception was not a bona fide program for the exclusive benefit of employees in general. Especially will this be true if, for example, a pension plan is abandoned soon after pensions have been fully funded for persons in favor of whom discrimination is prohibited under section 401(a). The permanency of the plan will be indicated by all of the surrounding facts and circumstances, including the likelihood of the employer's ability to continue contributions as provided under the plan. In the case of a profit-sharing plan, other than a profit-sharing plan which covers employees and owner-employees (see section 401(d)(2)(B)), it is not necessary that the employer contribute every year or that he contribute the same amount or contribute in accordance with the same ratio every year. However, merely making a single or occasional contribution out of profits for employees does not establish a plan of profit-sharing. To be a profit-sharing plan, there must be recurring and substantial contributions out of profits for the employees. In the event a plan is abandoned, the employer should promptly notify the district director, stating the circumstances which led to the discontinuance of the plan.
(3) If the plan is so designed as to amount to a subterfuge for the distribution of profits to shareholders, it will not qualify as a plan for the exclusive benefit of employees even though other employees who are not shareholders are also included under the plan. The plan must benefit the employees in general, although it need not provide benefits for all of the employees. Among the employees to be benefited may be persons who are officers and shareholders. However, a plan is not for the exclusive benefit of employees in general if, by any device whatever, it discriminates either in eligibility requirements, contributions, or benefits in favor of employees who are officers, shareholders, persons whose principal duties consist in supervising the work of other employees, or the highly compensated employees. See section 401(a) (3), (4), and (5). Similarly, a stock bonus or profit-sharing plan is not a plan for the exclusive benefit of employees in general if the funds therein may be used to relieve the employer from contributing to a pension plan operating concurrently and covering the same employees. All of the surrounding and attendant circumstances and the details of the plan will be indicative of whether it is a bona fide stock bonus, pension, or profit-sharing plan for the exclusive benefit of employees in general. The law is concerned not only with the form of a plan but also with its effects in operation. For example, section 401(a)(5) specifies certain provisions which of themselves are not discriminatory. However, this does not mean that a plan containing these provisions may not be discriminatory in actual operation.
(4) A plan is for the exclusive benefit of employees or their beneficiaries even though it may cover former employees as well as present employees and employees who are temporarily on leave, as, for example, in the Armed Forces of the United States. A plan covering only former employees may qualify under section 401(a) if it complies with the provisions of section 401(a)(3)(B), with respect to coverage, and section 401(a)(4), with respect to contributions and benefits, as applied to all of the former employees. The term “beneficiaries” of an employee within the meaning of section 401 includes the estate of the employee, dependents of the employee, persons who are the natural objects of the employee's bounty, and any persons designated by the employee to share in the benefits of the plan after the death of the employee.
(5)
(i) No specific limitations are provided in section 401(a) with respect to investments which may be made by the trustees of a trust qualifying under section 401(a). Generally, the contributions may be used by the trustees to purchase any investments permitted by the trust agreement to the extent allowed by local law. However, such a trust will be subject to tax under section 511 with respect to any “unrelated business taxable income” (as defined in section 512) realized by it from its investments.
(ii) Where the trust funds are invested in stock or securities of, or loaned to, the employer or other person described in section 503(b), full disclosure must be made of the reasons for such arrangement and the conditions under which such investments are made in order that a determination may be made whether the trust serves any purpose other than constituting part of a plan for the exclusive benefit of employees. The trustee shall report any of such investments on the return which under section 6033 it is required to file and shall with respect to any such investment furnish the information required by such return. See § 1.6033-1.
(c) Portions of years. A qualified status must be maintained throughout the entire taxable year of the trust in order for the trust to obtain any exemption for such year. But see section 401(a)(6) and § 1.401-3.
(d) Plan of several employers. A trust forming part of a plan of several employers for their employees will be qualified if all the requirements are otherwise satisfied.
(e) Determination of exemptions and returns.
(1) An employees' trust may request a determination letter as to its qualification under section 401 and exemption under section 501. For the procedure for obtaining such a determination letter see paragraph (l) of § 601.201 of this chapter (Statement of Procedural Rules).
(2) A trust which qualifies under section 401(a) and which is exempt under section 501(a) must file a return in accordance with section 6033 and the regulations thereunder. See §§ 1.6033-1 and 1.6033-2(a)(3). In case such a trust realizes any unrelated business taxable income, as defined in section 512, such trust is also required to file a return with respect to such income. See paragraph (e) of § 1.6012-2 and paragraph (a)(5) of § 1.6012-3 for requirements with respect to such returns. For information required to be furnished periodically by an employer with respect to the qualification of a plan, see §§ 1.404(a)-2, and 1.6033-2(a)(2)(ii)(I).
Source credit, amendments & notes

[T.D. 6500, 25 FR 11670, Nov. 26, 1960, as amended by T.D. 6675, 28 FR 10118, Sept. 17, 1963; T.D. 6722, 29 FR 5071, Apr. 14, 1964; T.D. 7168, 37 FR 5024, Mar. 9, 1972; T.D. 7428, 41 FR 34619, Aug. 16, 1976; T.D. 9665, 79 FR 26842, May 12, 2014; T.D. 9849, 84 FR 9233, Mar. 14, 2019; T.D. 9898, 85 FR 31967, May 28, 2020]

Treas. Reg. § 1.401-1 — Qualified pension, profit-sharing, and stock bonus plans. · eCFR editorial change effective 2020-05-28 · https://pensionresource.website/EAMain?content=EAMain.Law&id=cfr26-1.401-1&asof=2024-02-06 · printed Oct 16, 2026
On this page
  • (a) Introduction.
  • (b) General rules.
  • (ii) (ii) A profit-sharing plan is a plan established and mainta…
  • (d) Plan of several employers.
  • (e) Determination of exemptions and returns.
Implements
I.R.C. § 401 Qualified pension, profit-sharing, and stock bonus plans
Cited by (code & regs)
Guidance addressing this section
IRS / Treasury
Proposed Rules
Notices
  • Notice 2007-14 Feb 12, 2007 — Permitted benefits; defined benefit plan. This notice, which is a notice of intent to propose regulations, requests comments regarding the types of benefits pe… (a)(2)(b)(1)(i)
  • Notice 2007-8 Jan 16, 2007 — In-service distributions; section 905 of Pension Protection Act of 2006; request for comments. This notice states that the Treasury Department and the Service … (a)(2)(b)(1)(i)
Also cited in 25 other documents
IRS / Treasury
Final Rules
Proposed Rules
  • 87 FR 10504Proposed Feb 24, 2022 — Required Minimum Distributions Comments due May 25, 2022 (b)(1)(b)(1)(i)
  • 84 FR 60812Proposed Nov 8, 2019 — Updated Life Expectancy and Distribution Period Tables Used for Purposes of Determining Minimum Required Distributions Comments due Jan 7, 2020 (b)(1)
  • REG-148393-06Proposed Sep 24, 2007 — Proposed regulations under section 402 of the Code clarify that a payment from a qualified plan for an accident or health insurance premium generally constitut… (b)(1)(b)(1)(i)(b)(1)(ii)(b)(1)(iii)
  • REG-130241-04Proposed Jul 5, 2005 — Proposed regulations under section 415 of the Code contain proposed amendments to regulations regarding limitation on benefits and contributions under qualifie… (b)(1)(ii)
  • REG-114726-04Proposed Nov 22, 2004 — Proposed regulations under section 401(a) of the Code provide rules permitting distributions to be made from a pension plan under a phased retirement program a…
  • REG-128309-03Proposed Apr 19, 2004 — Proposed regulations under section 411(d)(6) of the Code provide guidance on the conditions under which a plan amendment may eliminate or reduce an early retir… (b)(1)(i)
  • REG-108639-99Proposed Sep 2, 2003 — Proposed regulations under sections 401(k) and 401(m) of the Code provide guidance on the requirements for certain retirement plans containing cash or deferred… (b)(1)(i)
Notices
  • Notice 2012-29 Apr 30, 2012 — This notice announces that the IRS and the Treasury Department anticipate issuing guidance relating to the applicability of the normal retirement age rules to … (b)(1)(i)
  • Notice 2007-69 Aug 27, 2007 — Normal retirement age; temporary relief. This notice provides temporary relief for certain pension plans whose definition of normal retirement age may be requi… (a)(2)(i)(b)(1)(i)
Announcements
  • Ann. 2011-78 Dec 19, 2011 — This announcement describes rules that the Treasury Department and the IRS are considering proposing relating to the determination of whether a plan is a gover… (a)(2)
Revenue Rulings
  • Rev. Rul. 2008-45 Aug 25, 2008 — Exclusive benefit rule; transfer of plan sponsorship; controlled groups. This ruling provides that the exclusive benefit rule of section 401(a) of the Code is … (a)(2)(i)(a)(3)(ii)
  • Rev. Rul. 2004-21 Mar 8, 2004 — Nondiscrimination; section 412(i) plan. This ruling provides an example where a plan that is funded, in whole or in part, with life insurance contracts may not… (b)(1)(i)
  • Rev. Rul. 2004-20 Mar 8, 2004 — Section 412(i) plans; deductibility; listed transactions. This ruling gives an example where a qualified pension plan cannot be a section 412(i) plan if the pl… (b)(1)(i)
  • Rev. Rul. 2004-12 Feb 17, 2004 — Plan qualification; rollovers. This ruling describes a situation where an eligible retirement plan separately accounts for amounts attributable to rollover con… (b)(1)(i)
Treasury Decisions
  • T.D. 9319 Apr 30, 2007 — Final regulations contain amendments to the regulations under section 415 of the Code regarding limitation on benefits and contributions under qualified plans.… (b)(1)(ii)
  • T.D. 9219 Sep 19, 2005 — Final regulations under section 411(d)(6) of the Code provide guidance relating to the anti-cutback rules and the notification requirements under section 4980F. (b)(1)(i)
  • T.D. 9130 Jun 28, 2004 — Final regulations concern required minimum distributions under section 401(a)(9) of the Code for defined benefit plans and annuity contracts providing benefits… (b)(1)(i)
  • T.D. 9072 Sep 15, 2003 — Final regulations under section 414(v) of the Code provide guidance on the requirements for retirement plans providing for catch-up contributions to individual…
Department of Labor (EBSA)
Proposed Rules
  • 81 FR 47534Proposed Jul 21, 2016 — Proposed Revision of Annual Information Return/Reports Comments due Oct 4, 2016 (a)(2)
PBGC
Final Rules
  • 79 FR 25667 May 6, 2014 — Benefits Payable in Terminated Single-Employer Plans; Limitations on Guaranteed Benefits; Shutdown and Similar Benefits (b)(1)(i)
Proposed Rules
  • 76 FR 13304Proposed Mar 11, 2011 — Benefits Payable in Terminated Single-Employer Plans; Limitations on Guaranteed Benefits Comments due May 10, 2011 (b)(1)(i)
Tax Court (36) · DOL/Federal (0)
U.S. Tax Court (36)
Rulings that address this provision
Also cite this provision (32)
Private Letter Rulings (3)
Private Letter Rulings (3)
Also cite this provision (3)
  • PLR 201747007 Nov 24, 2017 — Qualifications for Tax Credit Employee Stock Ownership Plans UIL 409.00-00 (a)(2) (b)(1)(ii) (b)(1)(iii)
  • PLR 201611003 Mar 11, 2016 — Medical, Etc. Benefits UIL 401.27-00
  • PLR 199925042 Jun 25, 1999 — Deduction for Contributions of Employer to an Employee's Trust or Annuity Plan and Compensation Under a Deferred-Payment Plan (Deduct. v. Not Deduct.) UIL 404.00-00, 4975.04-00 (b)(5)

Each row is a version of the text as published by the official source. Code dates are the edition/release point that first reflected the change; regulation dates are eCFR effective dates. The library checks the official sources automatically, so new versions appear here on their own; “run” opens the sync that recorded a version.

EffectiveThroughSourceAmended by
Apr 1, 1997Mar 31, 2015CFR 2014 annual edition (revised as of 2014-04-01) run 127T.D. 7428, 41 FR 34619, Aug. 16, 1976View
Apr 1, 2015Mar 13, 2019eCFR amendment effective 2016-05-18 run 26T.D. 9665, 79 FR 26842, May 12, 2014View · Redline (sign in)
Mar 14, 2019May 27, 2020eCFR editorial change effective 2019-03-14 run 26T.D. 9849, 84 FR 9233, Mar. 14, 2019View · Redline (sign in)
May 28, 2020currenteCFR editorial change effective 2020-05-28 run 2T.D. 9898, 85 FR 31967, May 28, 2020View · Redline (sign in)
Provision-level history (blame)