Rev. Rul. 70-317

Advice has been requested whether a pension plan established by a corporation may meet the requirements of section 401(a) of the Internal Revenue Code of 1954 if it contains the provisions described below.

The plan provides that where a participant's continuous service with the company is broken and he has had 15 or more years of continuous service on the date of such break, he shall be vested in a deferred (until age 65) retirement pension. The plan also provides that an employee who leaves the employment of the employer after he has acquired a right to receive benefits under the plan is to be informed at the time he leaves, of his right to such benefits, the necessity for applying for such benefits when they become payable, the time for making this application, and the procedure to be followed in making the application. In addition, the plan provides that, if a former employee does not make an application for his pension within 60 days after he reaches age 65, the trustee shall make a reasonable effort to locate him (or his beneficiaries) and notify him of the necessity for making the application. If an application for the pension is not made within a five-year period beginning at the time the trustee attempts to notify the participant (or his beneficiary) of the need to file the application, the participant will forfeit his right to the pension.

Section 401(a)(7) of the Code requires that a qualified pension plan give employees nonforfeitable rights upon its termination or upon complete discontinuance of contributions thereunder. In the absence of either a termination of the plan or a discontinuance of contributions, a qualified plan may provide for forfeiture of benefits for a cause which is distinctly specified in the plan and which does not discriminate in favor of employees who are officers, shareholders, supervisors, or highly compensated.

In the plan under consideration, each participant is vested in the benefits if he has 15 or more years of continuous service on the date of his separation from service prior to age 65. The distribution of the benefits will begin after the participant has reached age 65 if a timely application is made therefor. The requirement that an application be filed before the distribution of benefits under the plan will begin is reasonable. It is in the interest of the employee-participants, the employer, and the trustee that there be some provision for adjusting for those benefits that are unlikely to ever be paid. The requirement that an application be filed within a particular period of time is one way of permitting such an adjustment and the time allowed for filing an application in this case is sufficient to protect the employees' interests. The cause which will result in a forfeiture of vested benefits is, therefore, reasonable and is distinctly specified in the plan.

Accordingly, it is held that this pension plan will not fail to qualify under section 401(a) of the Code merely because it contains provisions divesting a participant of his right to a pension for failure to make application therefor within the five-year period specified in the plan.