dissenting: I respectfully disagree with the majority in its conclusion that the retirement plan here involved failed to meet the requirements of section 401(a)(3)(B) of the Code. That section recognizes as qualified a plan which benefits "such employees as qualify under a classification set up by the employer and found by the Secretary or his delegate not to be discriminatory in favor of’ the prohibited group. It must also meet the requirements of section 401(a)(4). As pointed out in the majority opinion, section 401(a)(3)(B) deals with coverage, or eligibility requirements, while section 401(a)(4) is concerned with whether in operation the contributions and benefits under the plan favor the prohibited group.1
The majority relies to a considerable extent on the fact that respondent had not made a finding that the classification used for eligibility to participate in this plan (all salaried employees 25 years of age who had been employed 1 year) is not discriminatory in favor of the prohibited group, and on petitioner’s failure to carry its burden of proof. I think very little weight can be given to those reasons in deciding that this plan is discriminatory under section 401(a)(3)(B). In the notice of deficiency respondent determined that the contributions to the plan were not deductible "since the inclusion of only 4 of the 15 eligible employees, all in the prohibited group, constitutes the discrimination prohibited by section 401(a)(4) of the Code.”2 In his opening brief respondent says "the decisive question in the present case is whether, considering the petitioner’s profit-sharing plan and the two union pension plans as a unit, contributions and benefits are discriminatory in favor of the prohibited group under section 401(a)(4).” A similar statement is made at the beginning of respondent’s reply brief. It thus seems clear that respondent considered that when the two union pension plans and the profit-sharing plan were considered as a unit, the coverage requirements of section 401(a)(3)(A) were met,3 and so he was not concerned with whether the classification met the requirements of section 401(a)(3)(B); he was concerned with section 401(a)(4), which the majority finds unnecessary to discuss. Under such circumstances it hardly seems proper that petitioner should have the burden of proving error in respondent’s determination that the classification did not meet the requirements of section 401(a)(3)(B).
I recognize that the Court may consider whether the plan met the requirements of either section 401(a)(3)(A) or (B) even though respondent seemingly gave little consideration to it; if for no other reason, because petitioner did. But I would approach the question in this case without reliance on burden of proof. I would also approach it on the premise that the salaried-only classification should not be considered discriminatory under the circumstances4 so that I «am concerned only with whether the remaining eligibility requirements were discriminatory within the meaning of section 401(a)(3)(B).
There were only seven salaried employees, four of whom were eligible for coverage and three of whom were not, when the plan was adopted, simply because they were either not then 25 years of age or had not then had 1 year of service. Admitting that the four eligible employees may have been within the prohibited group, the other three would have become eligible within a short time had they remained as employees of the company. I believe it would have been arbitrary and unreasonable for respondent to have found that these very minimal eligibility requirements would have made the classification discriminatory within the meaning of section 401(a)(3)(B), even if he had done so. I believe the majority opinion is in error in so finding. I believe the majority loses sight of its stated premise that section 401(a)(3)(B) deals with coverage while section 401(a)(4) deals with whether in operation the plan is discriminatory.
Goffe, J., agrees with this dissent.The majority opinion does not decide whether this plan meets the requirements of sec. 401(a)(4) and neither have I.
This is wrong — there were only seven salaried, and thus eligible, employees.
I have doubts that the three plans could be considered as a unit since petitioner had not so designated them and in fact disclaimed the fact on brief.
Respondent apparently agrees with this premise because he approved the plan the following year with amendments only with respect to years of service (reduced to 60 days) and age (reduced to 21).