HCE determination question

[fiona1]

A company in the US has a 410(k) plan. They are part of a controlled group with a company in Canada. The company in Canada is a separate company and not eligible for the 401(k) plan of the company in the US.

One of the workers at the company in Canada goes to work for the company in the US. So he is now eligible for the 401(k) plan.

I'm confused on if you would consider his wages at the company in Canada in determining his HC status. If so, how is that done?

[JanetM]

Yes if this is control group. You would have to convert his canadian pay to USD and see if that makes him HCE in 2007.

[fiona1]

Thanks for the reply. however, don't the 415 regulations provide a rule for administrative convenience? I thought this allows a plan to exclude compensation received by a nonresident alien provided the individual does not participate in the plan. The regulations say that this rule is relevant for purposes of determining who is a key employee under section 416 and a highly compensated employee under 414(q).

414(q)(8) SPECIAL RULE FOR NONRESIDENT ALIENS. --For purposes of this subsection and subsection ®, employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)) shall not be treated as employees.

At the time the individual received the nonresident alien compensation, he was not a plan participant. So, the first plan year of participation, the employee would not be considered an HCE. Subsequent years, the employee will be an HCE if his compensation is over the dollar limit.

Out of curiousity, why do you believe his Canadian pay needs to be converted to USD?

[austin3515]

1) You need to covert Canadian Dollars to USD because the applicable limit is denominated in USD.

2) I like the site that you have indicated HOWEVER, I don't think that section applies because the employee DOES have US-Source income for part of the year.

So take an example: John Doe from Canada transfers to the US on 6/30/07. I don't see any way around aggregating his compensation for the first and second half of the year to see if he is an HCE for 2008.

The real interesting question is do you look at the Canadian compensation for 2006 to see if he is an HCE for 2007? I still think the answer is yes except for one thing that keeps nagging at my brain: If that's the case, then what is the point of the rule you cited?

[fiona1]

This employee evidently transfered to the company in the US in 2007. So I guess my initial question has to do with his HC status in 2007 - in which you have to look at compensation in 2006. He would have had no US income in 2006.

So for his HC determination in 2008, I can see how you would convert his 2007 Canadian money to USD and add it to the income he made in the US in 2007.

From what I understand, the converstion of his 2006 Canadian money to USD would easily put him over the HC dollar limit of $100,000. But it still baffles me if this compensation can be excluded or not.

[Guest mjb]

comp earned while an non resident alien e.g. in canada is excluded from US comp since it is not us source income.

[austin3515]

If you could provide a site, that would be great - I'm actually dealing with this exact situation on my own. Everything I saw led me to the opposite conclusion.