Canadian employee on maternity leave

[ESOP Guy]

We have an ESOP that covers a Canadian employee. She is on maternity leave. She did not work 1,000 hours. The plan requires one to credit someone on maternity leave with enough hours to avoid a break in service. But you aren't required to give enough hours to put her over 1,000 hours if she did not work it. But they are telling us Canadian law requires us to give her a contribution.

What do you do when another countries laws appear to require you to violate the terms of the plan?

[ETA Consulting LLC]

What do you do when another countries laws appear to require you to violate the terms of the plan?

You have to consider which law is applicable. If it is a plan qualified under IRC Section 401(a), then you must follow the written terms of the plan; per IRC 401(a)(1).

Good Luck!

[MoJo]

We have an ESOP that covers a Canadian employee. She is on maternity leave. She did not work 1,000 hours. The plan requires one to credit someone on maternity leave with enough hours to avoid a break in service. But you aren't required to give enough hours to put her over 1,000 hours if she did not work it. But they are telling us Canadian law requires us to give her a contribution.

What do you do when another countries laws appear to require you to violate the terms of the plan?

You have a divergence between the U.S. based Internal Revenue Code, and apparently Canadian labor law. In order to maintain the qualified status of the plan, comply with the Internal Revenue Code. In order not to go to jail (or suffer such other consequences as Canada may impose), comply with Canadian law.

In other words, comply with both - and this is a classic reason why one should NEVER cover non-resident aliens in a U.S. based qualified retirement plan - UNLESS you can comply with each country's labor and revenue acts (which is rare).

[QDROphile]

If the employee in not highly compensated, amend the plan to provide the benefit to her if that is what is desired to comply with Canadian employment law.

[ESOP Guy]

QDRO:

I like the amendment idea. If nothing else going forward you could write in the allocation section of the document that the 1,000 requirement is waived in any situation where that requirement conflicts with local labor laws.

[QDROphile]

Too vague for my taste. Also, I don't like letting other laws infiltrate the plan document.

[ESOP Guy]

QDRO:

So how would you word the amendment?

[QDROphile]

Craft some class description that fits the participant and is exclusive and provide that participants within the description that are not HCEs will receive an allocation based on a different standard than 1000 hours. The allocation will have to be crafted to deliver whatever you believe the required benefit to be. You might limit the duration of the provision to suit the present circumstances and then be ineffective.