(a) General rules. In order for an employer's contribution to
qualify for exclusion from the regular rate under section 7(e)(4) of the
Act the following conditions must be met:
(1) The contributions must be made pursuant to a specific plan or
program adopted by the employer, or by contract as a result of
collective bargaining, and communicated to the employees. This may be
either a company-financed plan or an employer-employee contributory
plan.
(2) The primary purpose of the plan must be to provide
systematically for the payment of benefits to employees on account of
death, disability, advanced age, retirement, illness, medical expenses,
hospitalization, and the like.
(3) In a plan or trust, either:
(i) The benefits must be specified or definitely determinable on an
actuarial basis; or
(ii) There must be both a definite formula for determining the
amount to be contributed by the employer and a definite formula for
determining the benefits for each of the employees participating in the
plan; or
(iii) There must be both a formula for determining the amount to be
contributed by the employer and a provision for determining the
individual benefits by a method which is consistent with the purposes of
the plan or trust under section 7(e)(4) of the Act.
(iv) Note: The requirements in paragraphs (a)(3) (ii) and (iii) of
this section for a formula for determining the amount to be contributed
by the employer may be met by a formula which requires a specific and
substantial minimum contribution and which provides that the employer
may add somewhat to that amount within specified limits; provided,
however, that there is a reasonable relationship between the specified
minimum and maximum contributions. Thus, formulas providing for a
minimum contribution of 10 percent of profits and giving the employer
discretion to add to that amount up to 20 percent of profits, or for a
minimum contribution of 5 percent of compensation and discretion to
increase up to a maximum of 15 percent of compensation, would meet the
requirement. However, a plan which provides for insignificant minimum
contributions and permits a variation so great that, for
all practical purposes, the formula becomes meaningless as a measure of
contributions, would not meet the requirements.
(4) The employer's contributions must be paid irrevocably to a
trustee or third person pursuant to an insurance agreement, trust or
other funded arrangement. The trustee must assume the usual fiduciary
responsibilities imposed upon trustees by applicable law. The trust or
fund must be set up in such a way that in no event will the employer be
able to recapture any of the contributions paid in nor in any way divert
the funds to his own use or benefit. (It should also be noted that in
the case of joint employer-employee contributory plans, where the
employee contributions are not paid over to a third person or to a
trustee unaffiliated with the employer, violations of the Act may result
if the employee contributions cut into the required minimum or overtime
rates. See part 531 of this chapter.) Although an employer's
contributions made to a trustee or third person pursuant to a benefit
plan must be irrevocably made, this does not prevent return to the
employer of sums which he had paid in excess of the contributions
actually called for by the plan, as where such excess payments result
from error or from the necessity of marking payments to cover the
estimated cost of contributions at a time when the exact amount of the
necessary contributions under the plan is not yet ascertained. For
example, a benefit plan may provide for definite insurance benefits for
employees in the event of the happening of a specified contingency such
as death, sickness, accident, etc., and may provide that the cost of
such definite benefits, either in full or any balance in excess of
specified employee contributions, will be borne by the employer. In such
a case the return by the insurance company to the employer of sums paid
by him in excess of the amount required to provide the benefits which,
under the plan, are to be provided through contributions by the
employer, will not be deemed a recapture or diversion by the employer of
contributions made pursuant to the plan.
(5) The plan must not give an employee the right to assign his
benefits under the plan nor the option to receive any part of the
employer's contributions in cash instead of the benefits under the plan:
Provided, however, That if a plan otherwise qualified as a bona fide
benefit plan under section 7(e)(4) of the Act, it will still be regarded
as a bona fide plan even though it provides, as an incidental part
thereof, for the payment to an employee in cash of all or a part of the
amount standing to his credit (i) at the time of the severance of the
employment relation due to causes other than retirement, disability, or
death, or (ii) upon proper termination of the plan, or (iii) during the
course of his employment under circumstances specified in the plan and
not inconsistent with the general purposes of the plan to provide the
benefits described in section 7(e)(4) of the Act.
(b) Plans under section 401(a) of the Internal Revenue Code. Where
the benfit plan or trust has been approved by the Bureau of Internal
Revenue as satisfying the requirements of section 401(a) of the Internal
Revenue Code in the absence of evidence to the contrary, the plan or
trust will be considered to meet the conditions specified in paragraphs
(a)(1), (4), and (5) of this section.
[33 FR 986, Jan. 26, 1968, as amended at 46 FR 7312, Jan. 23, 1981]
Payments not for Hours Worked
