Foreign employees

[Guest Jose Rosario]

Please help me understand the implications of including employees employed in a foreign country in a domestic qualified plan.

May employees of a foreign subsidiary of a domestic plan sponsor participate in the domestic sponsor's qualified plan?

If so, this arrangement would seem to make sense in the case of employer contributions. It does not, however, seem to make sense in the case of 401(k) plans, as the employees of the foreign subsidiary realize no tax benefit by contibuting to a 401(k) plan; presumably, they would be taxed by the foreign country prior to contributing, then taxed by the US when they take a distribution. Please comment.

Finally, IRC § 406(a) and Treas Reg § 1.406-1(b)(1)(i)

discuss a domestic employer entering into an agreement with the IRS to permit the employer's foreign employees to participate in the employer's domestic plan. Is there any guidance on how to enter into such an agreement?

[mbozek]

You need to consult tax counsel. Non resident aliens with no us source income can be excluded from a qualfied plan. Putting a non resident alien with no us source income in a us pension plan creates us income tax liability for such a person. Benefits are subject to 30% withholding and us taxation unless exempted by a treaty.l Better to put the non resident aliens in a non qualfied plan that pay them in foreign currency. Also some countries may restrict benefits paid to their citizens under foriegn plans.

[Guest Jose Rosario]

Thanks for your repsonse and suggestions.