Rev. Rul. 69-277

Advice has been requested whether a pension plan fails to qualify under section 401(a) of the Internal Revenue Code of 1954 if it permits participants to withdraw their voluntary contributions, together with the interest actually accrued thereon, prior to the termination of their employment under the circumstances described below.

A corporation established a money purchase pension plan intended to qualify under section 401(a) of the Code. Under the terms of the plan, participants are permitted to make limited voluntary contributions to the trust to provide benefits in addition to those provided by employer contributions. Upon 30 days advance notice to the trustee, participants are allowed to withdraw their voluntary contributions together with the accumulated interest thereon. However, no contributions will be made on behalf of an employee for the year in which he makes such a withdrawal.

Section 1.401-1(b)(1)(i) of the Income Tax Regulations provides that a pension plan is a plan established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits to his employees over a period of years, usually for life, after retirement.

Revenue Ruling 59-185, C.B. 1959-1, 86, holds that a qualified plan may permit limited voluntary employee contributions to encourage savings by participants. Revenue Ruling 60-323, C.B. 1960-2, 148, holds that a pension plan may provide for withdrawals by participants of voluntary contributions made in addition to their compulsory contributions. Revenue Ruling 60-323 does not consider the effect, on the qualification of the plan, of permitting the withdrawal of increments earned on the withdrawn contributions because the plan involved therein expressly precluded the allowance of interest on the withdrawn contributions, either at the time of the withdrawal or in computing benefits on retirement. However, Revenue Ruling 60-281, C.B. 1960-2, 146, relating to withdrawal of contributions upon discontinuance of participation in the plan, states that a recognition of an employee's right to withdraw his contributions carries with it a right to receive any increment actually earned on those contributions. See Revenue Ruling 67-340, C.B. 1967-2, 147, to the same effect.

Accordingly, the pension plan in this case does not fail to qualify under section 401(a) of the Code, merely because the participants are allowed to withdraw their voluntary contributions, together with the accumulated interest thereon, prior to the termination of their employment.