US Citizens Working Abroad

[ERISA-Bubs]

We have several US Citizens that work in foreign countries and receive only non-US source income. I know they are not excluded from coverage testing as nonresident aliens because they are US Citizens. Is there any way to exclude them from coverage testing?

I notice in Sal's book that he provides that a US citizen in Puerto Rico or in one of the US possessions must be included in coverage testing. This implies to me that if they are not in Puerto Rico or a US possession, that they may be excluded. Under what theory can I exclude them?

I'm also exploring the theory that they have no compensation since it is all non-US Source income so I can treat them as benefitting under the plan based on Treas. Reg. § 1.410(b)-3(a)(2)(ii)© that provide if an allocation is not made because of §415 limits, the employee is deemed to benefit for coverage purposes. I think this might fall apart since foreign income counts under 415.

Could I treat them as non-employees? Do I have a basis for that?

[ETA Consulting LLC]

If they are a US citizen, then they cannot be statutorily excluded under the safe harbor exclusions. The only safe harbor exclusion (exemption from coverage) is a Non US Citizen living AND working outside of the US. For this purpose, Puerto Rico citizens are not treated as non-US citizens (and are not statutorly excludables under this exemption.

Good Luck!

[ERISA-Bubs]

Only US income can be deferred under the plan. This person receives no US income. Does that matter? It would seem that an international company with lots of US citizens working abroad would never be able to pass coverage testing if those employees have to be included.

[Guest Exec Comp]

I am unable to do any research regarding this, but could it be possible that they are working for a company that is not in the same controlled group? I do not have much experience with foreign entities, but I believe a foreign sub would not be considered in the same controlled group as the US company and, therefore, the individual would not be an employee for testing purposes.

[Guest Exec Comp]

I take that back. A foreign company is included in the controlled group for coverage testing purposes. Not sure how you'd exclude the US citizen.