Rev. Rul. 70-126

Advice has been requested whether, under the circumstances described below, a pension plan fails to qualify under section 401(a) of the Internal Revenue Code of 1954 because it permits the reentry of a participant who has previously withdrawn from the plan.

A pension plan intended to qualify under section 401(a) of the Code provides a monthly benefit at normal retirement age of 50 percent of each participant's average monthly compensation. The plan also provides for graduated vesting of the benefits funded for each participant and for the distribution of his vested interest under the plan in the event of his termination of employment before reaching normal retirement age. If a former participant is reemployed by the employer, the plan requires that he be permitted to reenter the plan. However, the benefit that such a participant would otherwise have been entitled to receive upon reaching normal retirement age is reduced by the value of any distribution he received upon his earlier termination of employment.

Section 1.401-3(b) of the Income Tax Regulations provides that a plan may meet the coverage requirements of section 401(a)(3)(B) of the Code if its eligibility conditions, benefits, and contributions do not discriminate in favor of employees who are officers, shareholder supervisors, or highly compensated. Section 1.401-4(a)(1)(i) of the regulations provides that the contributions or benefits under the plan must not discriminate in favor of the enumerated employees as against other employees.

Qualified plans may provide for reentry after discontinuance of original participation upon severance of employment or for other reasons. However, such provisions must be uniformly applied so as not to result in the prohibited discrimination and, in no event, should they result in a duplication of benefits.

In view of the foregoing, it is held that the plan in this case does not fail to qualify merely because it permits reentry after discontinuance of participation, since the provision for reentry is uniformly applicable to all participants and precludes any duplication of benefits.