Section 5. Example

Employer O maintains Plan X, a qualified money purchase pension plan that is maintained on a calendar plan year basis. Plan X benefits three employees: A and B, who are husband and wife and are each highly compensated, and C, who is unrelated to A and B. Plan X provides that the employer will contribute annually 10% of each employee’s compensation for the plan year, with compensation limited to the amount that may be taken into account under § 401(a)(17). Plan X also contains the family aggregation rules, as in effect prior to their repeal by SBJPA. As a result, under Plan X, the amount that may be contributed on behalf of A and B may

not, in total, exceed 10% of the § 401(a)(17) limit. Plan X does not have a funding deficiency or provide past service credit; the normal cost of Plan X for a year is the 10% required contribution.

A and B each receive $90,000 of compensation for the 1997 plan year, and C receives $70,000. The § 401(a)(17) limit for the 1997 plan year is $160,000. Taking Plan X’s family aggregation provisions into account, the normal cost of Plan X for 1997 would be $23,000 (that is, $16,000, or 10% of $160,000, plus $7,000). However, Employer O expects to amend Plan X within the remedial amendment period to eliminate the plan’s family aggregation provisions effective as of the first day of the 1997 plan year. Employer O therefore disregards the plan’s family aggregation provisions and contributes $25,000 for the 1997 plan year on August 15, 1998. This amount is allocated, as of December 31, 1997, as follows: $9,000 each for A and B and $7,000 for C. Employer O amends Plan X by December 31, 1999, to eliminate Plan X’s family aggregation provisions, effective

as of the first day of the 1997 plan year. Pursuant to this revenue procedure, this plan amendment is deemed to have been adopted and put into effect as of the first day of the 1997 plan year for purposes of applying §§ 412 and 404 to Plan X. Accordingly, the normal cost under § 412 of Plan X for 1997 is $25,000. This is also the normal cost of Plan X for purposes of § 404.