Rev. Rul. 70-181

Advice has been requested whether a plan that contains a provision permitting continued participation by employees on leave of absence fails to qualify under section 401(a) of the Internal Revenue Code of 1954.

The plan provides that all employees with three or more years of service are entitled to participate thereunder. The plan also provides that any employee who becomes a participant shall continue to participate during any period in which he is on any leave of absence granted pursuant to the employer's established leave policy, which shall be applied in a uniform and nondiscriminatory manner to all participants under similar circumstances. The plan does not state the purposes for which leaves of absence will be granted or further describe the employer's leave policy.

Section 401(a) of the Code provides for the qualification of a pension, profit-sharing, or stock bonus plan established by an employer for the exclusive benefit of his employees or their beneficiaries if, in addition to meeting the other requirements of that section, contributions or benefits under the plan do not discriminate in favor of employees who are officers, shareholders, supervisors, or highly compensated.

Section 1.401-1(b)(4) of the Income Tax Regulations provides that a plan is for the exclusive benefit of employees or their beneficiaries even though it may cover employees who are temporarily on leave, as, for example, in the Armed Forces of the United States.

The plan provision in this case permits continued participation while on leave of absence only where the leave is granted pursuant to an established leave policy that is applied to all participants in a uniform and nondiscriminatory manner. Since this provision expressly requires the nondiscriminatory treatment of all employees, the provision will not result in the prohibited discrimination.

Accordingly, it is held that the plan does not fail to qualify under section 401(a) of the Code merely because it contains the described provision permitting continued participation by employees on leave of absence.

Part 4(f) of Revenue Ruling 69-421, C.B. 1969-2, 59, at 71, is hereby modified to remove therefrom the implication that a qualified plan may permit continued participation by a participant on leave of absence only if the leave is for a purpose that is specified in the plan.