401(k) Permissible For Foreign Embassy?

[Guest Hedwig]

A M&P plan has allowed participation by a foreign embassy. It turns out that many of the participants do not collect income taxable by the US. Is it permissible for the embassy to sponsor a 401(k) and, if so, is there any reason why those who do not collect taxable income cannot participate? The embassy is treating the plan like a savings plan for employees (there are no salary deferrals).

[mbozek]

How can a foreign government (since an embassy is a representative of such govt ) maintain a 401k plan? Does the adoption agreement for a M & P permit such adoption?

[Guest Hedwig]

The adoption agreement is silent. Under identifying information - type of entity adopting the plan - they checked "other" and added "foreign embassy." I'm wondering whether the sales people just sold the plan to the embassy and had it set up without any consideration of its permissibility.

[k man]

i dont think it matters whether it is an embassy per se. it matters whether they are an employer. if they have employees that have us source income they might be able to sponsor a plan. but the better question is why they even need this plan. if they dont have U.S. Source income why dosn't the embassy just give them the savings contribution as a bonus and let them do what they want with it.

[Guest Hedwig]

K man - That is my thinking. The embassy seems to be a bona fide employer and they do have a number of local employees who are US citizens and who earn taxable income. This came up in connection with testing and how to treat the non-US income recipients. Maybe we should simply distribute accounts of those individuals and continue the plan for the others provided, of course, that the Embassy is permitted to sponsor the plan in the first place. Hmmm...