What Is Revenue Ruling 81-100 for Group Trusts?

Revenue Ruling 81-100, issued by the Internal Revenue Service (IRS), established a framework allowing separate, tax-qualified retirement plans to pool their assets into a single group trust for investment purposes. This structure is designed to achieve economies of scale, providing smaller plans with access to investment opportunities and professional management that might otherwise be available only to very large plans. By commingling assets, participating plans can often reduce investment management fees and administrative costs.

The principle of this ruling is that the pooling of assets does not affect the tax-exempt status of the individual retirement plans participating in the trust. Each participating plan maintains its distinct legal identity and its own set of governing provisions.

Core Requirements of the Group Trust

For a group trust to qualify under Revenue Ruling 81-100, its governing trust instrument must contain specific provisions. A primary condition is that the group trust must be created or organized in the United States and maintained at all times as a domestic trust. This ensures that the trust is subject to U.S. laws and regulations.

A component of the trust instrument is the formal adoption by each retirement plan that chooses to participate. This means the plan sponsor must officially agree to the terms of the group trust, making it a part of their own plan’s governing documentation. This step legally binds the participating plan to the rules of the group trust.

The trust document must explicitly forbid the use of any part of the trust’s assets or income for purposes other than the exclusive benefit of the employees and their beneficiaries. This “exclusive benefit rule” is a foundational principle of retirement plan law, and its inclusion in the group trust instrument is mandatory to prevent assets from being diverted.

The trust instrument must contain a clause that prohibits any participating plan from assigning its interest in the group trust. This anti-assignment provision ensures that a plan’s stake in the pooled assets cannot be sold, transferred, or used as collateral. This restriction protects the assets from the creditors of the participating employer.

Finally, the group trust must be operated exclusively for the purpose of commingling and collectively investing the funds of its member plans. Its activities must be limited to investment functions and it cannot engage in other business activities.

Eligible Participating Plans and Investors

Initially, Revenue Ruling 81-100 limited participation in group trusts to pension, profit-sharing, and stock bonus plans that were tax-qualified under the Internal Revenue Code. Over the years, the IRS recognized that other types of tax-favored savings arrangements could also benefit from access to group trusts. Through a series of subsequent rulings, the scope of eligible investors was expanded, beginning with the inclusion of Individual Retirement Accounts (IRAs).

A significant expansion came with Revenue Ruling 2004-67, which formally permitted eligible governmental plans to invest in group trusts. This was an important development for public sector employees, as it gave their retirement plans access to the same cost-effective investment pooling opportunities available to private-sector plans.

The list of eligible participants was further broadened by Revenue Ruling 2011-1. This guidance clarified that certain 403(b) plans could be included, and subsequent guidance extended eligibility to certain retirement plans qualified under the Puerto Rico Code. More recently, the SECURE 2.0 Act of 2022 changed the rules to permit 403(b) custodial accounts to invest in group trusts, often called Collective Investment Trusts (CITs). However, a conflict with existing federal securities laws means that, in practice, these 403(b) plans cannot yet invest in group trusts until the legislative discrepancy is resolved.

Tax and Reporting Implications

The group trust itself is treated as a tax-exempt entity, meaning its investment earnings are not subject to federal income tax. This tax-exempt status is contingent on the trust adhering to the requirements of Revenue Ruling 81-100 and its subsequent modifications. The tax benefits allow investment returns to grow on a tax-deferred basis.

A consideration is the treatment of Unrelated Business Taxable Income (UBTI). If the group trust invests in assets that generate UBTI, such as through debt-financed investments or active business operations, that income is not tax-exempt. The UBTI generated by the group trust is passed through to the participating plans on a pro-rata basis, and each plan is responsible for any tax liability on its share.

This pass-through of UBTI has direct reporting consequences. If a group trust has gross UBTI of $1,000 or more for the year, it must file Form 990-T, Exempt Organization Business Income Tax Return. This form is used to report the unrelated business income and calculate the tax due, which is paid by the trust.

For the individual participating plans, their investment in the group trust simplifies their own annual reporting. On its Form 5500, a participating plan does not need to list all of the underlying securities held by the group trust. Instead, the plan reports its percentage ownership in the group trust as a single investment, greatly reducing the administrative burden of disclosure.