Rev. Rul. 66-175

Advice has been requested as to the circumstances under which an employee may be permitted to make pension trust contributions that normally would be required to be made by the employer without causing disqualification of the pension plan.

Pursuant to a collective bargaining agreement, a union sponsored industry-wide pension plan and trust were established. All employers who are parties to the agreement are required to participate in the trust fund, except those excused from doing so because of the maintenance of their own separate pension plans meeting requirements set forth in the agreement. Benefits are provided under the trust agreement only to those members who either complete a specified number of years of continuous covered service or earn a designated number of service credits (based on time worked for contributing employers) without more than two years interruption in covered employment.

The plan provides that any union member otherwise eligible to participate in the plan, but with respect to whom no contributions are made by any employer either because his employer is excused under the collective bargaining agreement or because he is temporarily unemployed, may contribute to the trust the minimum amount that would be required to be contributed by an employer with respect to such employee to preserve accrued but nonvested credits. Hence, union members who are temporarily out of work or are working for employers who are a party to the collective bargaining agreement but who are excused from participation in the plan may contribute to protect their contingent interests in the plan from forfeiture. However, by its terms it would also permit individual union members who had never worked for a participating employer to contribute to and receive benefits under the plan.

Section 401(a) of the Internal Revenue Code of 1954 sets forth the requirements for qualification of pension trusts. This section makes it clear that only a trust which forms part of a plan of an employer for the exclusive benefit of his employees or their beneficiaries can constitute a qualified trust.

Section 1.401-1 of the Income Tax Regulations, in explaining the requirements for qualification, refers repeatedly to a plan `established and maintained by an employer' as being qualified if it meets certain requirements.

Where an employee has been employed by a participating employer and, hence, covered under the plan a provision permitting the employee to contribute to the trust, when not employed or employed by an employer who is a party to the collective bargaining agreement but who is excused from participation in the plan, in order to protect earned but nonvested credits, is analogous to a provision permitting participation on the part of former employees or employees on leave. Such provisions are permitted in qualified plans by section 1.401-1(b)(4) of the regulations, provided they do not result in prohibited discrimination, are uniformly applied, and do not result in duplication of benefits. See Part 4(f), (0), and (r) of Revenue Ruling 65-178, C.B. 1965-2, 94.

Accordingly, it is held that a provision in a pension plan which permits an employee who has never been employed by a participating employer to make contributions to the trust on his own behalf will adversely affect the qualification of the plan under section 401(a) of the Code, since such a plan is not a part of a pension plan established and maintained by his employer.

However, qualification of the union negotiated industry-wide pension plan under section 401(a) of the Code will not be adversely affected where such a provision as restricted to employees who are separated from the service of a participating employer and permits voluntary contributions to the trust during periods of temporary unemployment or employment with a nonparticipating employer who is a party to the collective bargaining agreement if such contributions are made in order to protect the employee's earned but nonvested interest and provided (1) the contributions are not in excess of what an employer would otherwise be required to contribute in order to preserve accrued but nonvested credits, (2) all employees under similar circumstances are treated alike, (3) the employee's contributions made are nonforfeitable, and (4) such provision does not result in duplication of benefits.