Participation by Foreign Nationals

[Guest Bahrman]

Is anyone aware of any ERISA requirements which would preclude a foreign national from participating in a 401(k) Plan? Or better yet, an ERISA provision which affirmative permits such participation?

We are deliberately avoiding the question of why the individual might want to participate.

Thanks,

Tom

[mbozek]

A qualified plan can restrict participation to us nationals and persons working in the US. Foreign nationals with no us source income can be put into a separate non ERISA plan.

[Guest Bahrman]

I assume most plans might want to place foreign nationals (not resident in the U.S.) into a separate non-ERISA plan so they have greater flexibility of benefits. In many cases I would guess that separate non-ERISA plan might be designed to take advantage of local tax law in the foreign nationals native country.

However, where an employer actually wants to permit the foreign national (with no U.S. based income) into the ERISA plan, is there anything preventing them from doing so. Again, acknowledging there may be no tax benefit. I think the motivitation here is administrative convenience.

Thanks,

Tom

[KJohnson]

In fact I have seen employers "walk into" a situation where they should have covered them when in fact they did not. Controlled group rules bring in foreign controlled group members. A standardized protype document covers all controlled group members. I have seen a U.S. controlled group member with no directly employed non-resident aliens sign a standardized adoption agreement figuring that they did not have to check the non-resident alien box for exclusion from coverage. They did not realize that they had just made a decision to cover all employees in the controlled group in foreign subs, parents etc.

[IRC401]

Many foreign countries will tax 401(k) contributions. In such a case a foeigner will owe tax to his country when he makes the 401(k) contribution and tax to the US when it is withdrawn. Non-resident aliens with no US source income should be excluded unless there is a specific reason to include them (and the employer should be willing to pay for good tax advice).

PS: I once had a client that had not excluded Canadians (with no US income) from its DB plan. My firm got a lot of fees to figure out how to deal with the tax issues.