Exclusions of employees whose compensation is reimbursed by foreign pa

[Guest Harry O]

Ahhh, one of my favorite issues -- secondment of employees!

First, whether someone is an employee of Z depends on good, old fashioned common law principles. Which company directs and controls the day-to-day activities of the workers? The fact that the workers' compensation is charged to another entity is not determinative.

Second, even if they are common law employees of Z there is no requirement that they actually participate in the plan. I only get involved with individually designed plans so I'm not sure of the limitations of a prototype. Many of the plans I'm familiar with would exclude these employees if the employees are participating in another plan sponsored by the employer (or an affiliate). In this case its a good bet that the employees continue to be covered in their home country plans.

You are right that even if these employees could be excluded you still have to take them into account when running your 410(B) coverage tests. Again, you are right that nonresident alien employees of X can be excluded from 401(B) testing if they have no US source income. But even if these workers are "true employees" of X they cannot be excluded from testing because they have US source income.

Bottom line: apply the common law employment test to see which company is actually the employer. Since the employees have US source income they will be taken into account for 410(B) testing regardless of whether employed by X or Z. Your big issue is what does the plan document provide -- if employees of X I think they are in the plan; if employees of Z you can exclude them (again, assuming 410(B) is satisified).

Good luck.

[Guest RS Vatalaro]

Company X is a parent to wholly owned sub Z. The parent is not based in the U.S. The sub is. Z sponsors a 401k plan and a non-standardized prototype document is being used.

According to plan sponsor, certain employees are excluded from participation. They receive a U.S. W-2. However 100% of their compensation is reimbursed to Z by X at the end of the year. These reimbursed employees work and live in the U.S.. So the plan sponsor considers these people to be employees of X not Z.

True employees of X are statutorily excludable due to being non-resident aliens, correct?

I'm not sure I agree though that the reimbursed employees are employees of X. I think they are employees of Z and therefore if they were going to be excluded, the plan would have pass 410b etc and the doc would have to specifically exclude this group of people. The prototype doc obviously contains no such exclusion.

Anyone have any thoughts on whether you agree or disagree w/ me and any other problems you see here? Thank you!