[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.401(a)(26)-2]

[Page 256-258]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.401(a)(26)-2  Minimum participation rule.

    (a) General rule. A plan satisfies this paragraph (a) for a plan 
year only if the plan benefits at least the lesser of--
    (1) 50 employees of the employer, or
    (2) 40 percent of the employees of the employer.
    (b) Frozen plans. A plan under which no employee or former employee 
benefits (within the meaning of Sec. 1.401(a)(26)-5 (a) or (b)), is a 
frozen plan for purposes of this section and satisfies paragraph (a) of 
this section automatically. Thus, a frozen defined contribution plan 
satisfies section 401(a)(26) automatically and a frozen defined benefit 
plan satisfies section 401(a)(26) for a plan year by satisfying the 
prior benefit structure requirements in Sec. 1.401(a)(26)-3. For 
purposes of the rule in this paragraph (b), a defined benefit plan that 
provides only the minimum benefits for non-key employees required by 
section 416 is a frozen defined benefit plan.
    (c) Plan. ``Plan'' means a plan within the meaning of Sec. 
1.401(b)-7 (a) and (b), after the application of the mandatory 
disaggregation rules of paragraph (d)(1) of this section and, if 
applicable, the permissive disaggregation rules of paragraph (d)(2) of 
this section.
    (d) Disaggregation of certain plans--(1) Mandatory disaggregation--
(i) ESOPs and non-ESOPs. The portion of a plan that is an ESOP and the 
portion of the plan that is not an ESOP are treated as separate plans 
for purposes of section 401(a)(26), except as otherwise permitted under 
Sec. 54.4975-11(e) of this Chapter.
    (ii) Plans maintained by more than one employer--(A) Multiple 
employer plans. If a plan benefits employees of more than one employer 
and those employees are not included in a unit of employees covered by 
one or more collective bargaining agreements, the plan is a multiple 
employer plan. A multiple employer plan is treated as separate

[[Page 257]]

plans, each of which is maintained by a separate employer and must 
separately satisfy section 401(a)(26) by reference only to that 
employer's employees.
    (B) Multiemployer plans. The portion of a multiemployer plan that 
benefits employees who are included in one or more units of employees 
covered by one or more collective bargaining agreements and the portion 
of that plan that benefits employees who are not included in a unit of 
employees covered pursuant to any collective bargaining agreement are 
treated as separate plans. The portion of a multiemployer plan that 
benefits employees who are not included in a unit of employees covered 
by a collective bargaining agreement is a multiple employer plan as 
described in paragraph (d)(1)(ii)(A) of this section. This paragraph 
(d)(1)(ii)(B) does not apply to the extent that the special testing rule 
in Sec. 1.401(a)(26)-1(b)(2)(ii) applies. Also, this paragraph 
(d)(1)(B)(2) does not apply for purposes of prior benefit structure 
testing under Sec. 1.401 (a)(26)-3.
    (iii) Defined benefit plans with other arrangements--(A) In general. 
A defined benefit plan is treated as comprising separate plans if, under 
the facts and circumstances, there is an arrangement (either under or 
outside the plan) that has the effect of providing any employee with a 
greater interest in a portion of the assets of a plan in a way that has 
the effect of creating separate accounts. Separate plans are not 
created, however, merely because a partnership agreement provides for 
allocation among partners, in proportion to their partnership interests, 
of either the cost of funding the plan or surplus assets upon plan 
termination.
    (B) Examples. The following examples illustrate certain situations 
in which other arrangements relating to a defined benefit plan are or 
are not treated as creating separate plans:

    Example 1. Employer A maintains a defined benefit plan under which 
each highly compensated employee can direct the investment of the 
portion of the plan's assets that represents the accumulated 
contributions with respect to that employee's plan benefits. In 
addition, by agreement outside the plan, if the product of the 
employee's investment direction exceeds the value needed to fund that 
employee's benefits, Employer A agrees to make a special payment to the 
participant. In this case, each separate portion of the pool of assets 
over which an employee has investment authority is a separate plan for 
the employee.
    Example 2. Employer B is a partnership that maintains a defined 
benefit plan. The partnership agreement provides that, upon termination 
of the plan, a special allocation of any excess plan assets after 
reversion is made to the partnership on the basis of partnership share. 
This arrangement does not create separate plans with respect to the 
partners.

    (iv) Plans benefiting employees of qualified separate lines of 
business. If an employer is treated as operating qualified separate 
lines of business for purposes of section 401(a)(26) in accordance with 
Sec. 1.414(r)-1(b), the portion of a plan that benefits employees of 
one qualified separate line of business is treated as a separate plan 
from the portions of the same plan that benefit employees of the other 
qualified separate lines of business of the employer. See Sec. Sec. 
1.414(r)-1(c)(3) and 1.414(r)-9 (separate application of section 
401(a)(26) to the employees of a qualified separate line of business). 
The rule in this paragraph (d)(6) does not apply to a plan that is 
tested under the special rule for employer-wide plans in Sec. 1.414(r)-
1(c)(3)(ii) for a plan year.
    (2) Permissive disaggregation--(i) Plans benefiting collectively 
bargained employees. For purposes of section 401(a)(26), an employer may 
treat the portion of a plan that benefits employees who are included in 
a unit of employees covered by a collective bargaining agreement as a 
plan separate from the portion of a plan that benefits employees who are 
not included in such a collective bargaining unit. This paragraph 
(d)(2)(i) applies separately to each collective bargaining agreement. 
Thus, for example, the portion of a plan that benefits employees 
included in a unit of employees covered by one collective bargaining 
agreement may be treated as a plan that is separate from the portion of 
the plan that benefits employees included in a unit of employees covered 
by another collective bargaining agreement.
    (ii) Plans benefiting otherwise excludable employees. If an employer 
applies section 401(a)(26) separately to the portion of a plan that 
benefits only employees who satisfy age and service

[[Page 258]]

conditions under the plan that are lower than the greatest minimum age 
and service conditions permissible under section 410(a), the plan is 
treated as comprising separate plans, one benefiting the employees who 
have not satisfied the lower minimum age and service but not the 
greatest minimum age and service conditions permitted under section 
410(a) and one benefiting employees who have satisfied the greatest 
minimum age and service conditions permitted under section 410(a). See 
Sec. 1.401(a)(26)-6(b)(1)(ii) for rules concerning testing of otherwise 
excludable employees.

[T.D. 8375, 56 FR 63414, Dec. 4, 1991]