Foreign owned company wants to recognize service with the parent

[BG5150]

Company A based overseas, has wholly owned subsidiary in US with a plan.  Several employees from parent will be working for the US company.

1) Do they HAVE to recognize service with the parent company?

2) if yes, do we even have to do an amendment?

3)  Is the same controlled group testing done for foreign companies (in case this parent owns some or all of other companies not based in the US)?  If not, I guess we would list the companies for which service would be credited.

[Larry Starr]

41 minutes ago, BG5150 said:

Company A based overseas, has wholly owned subsidiary in US with a plan.  Several employees from parent will be working for the US company.

1) Do they HAVE to recognize service with the parent company?

2) if yes, do we even have to do an amendment?

3)  Is the same controlled group testing done for foreign companies (in case this parent owns some or all of other companies not based in the US)?  If not, I guess we would list the companies for which service would be credited.

1) No. 2) NA. 3)Yes, but remember that non-resident aliens are excludable.

Foreign ownership can be a big problem; sometimes there are multiple US companies owned by the foreign parent but the US companies don't know they are related because the parent keeps it secret.  We have had the problem.  One big mess because the US companies are in a controlled group and none of the US advisors know it.  We found out when the parent decided that it wanted to merge the two US firms; boy were the presidents of those firms surprised!

[traveler]

 

Larry, did you mean to indicate that one does not count service earned while working for a member of a controlled group?   Its my understanding that If the foreign parent and the US subsidiary are part of a controlled group under 414(b) or (c), and employee A who worked at parent is transferred to subsidiary, A's service at parent should count for all purposes in any US plan offered by the subsidiary.   The non-resident alien exception applies for 410(b)  coverage testing purposes, but not for service crediting.    

[Larry Starr]

3 hours ago, traveler said:

 

Larry, did you mean to indicate that one does not count service earned while working for a member of a controlled group?   Its my understanding that If the foreign parent and the US subsidiary are part of a controlled group under 414(b) or (c), and employee A who worked at parent is transferred to subsidiary, A's service at parent should count for all purposes in any US plan offered by the subsidiary.   The non-resident alien exception applies for 410(b)  coverage testing purposes, but not for service crediting.    

The parent is a foreign employer.  Were the employees of the US subsidiary non-resident aliens when they were with the parent?  I expect they were, and if so, I don't believe their time with the foreign employer has to be counted.  Here is some stuff from the Erisa Outline Book:

4. Exclusion of certain nonresident alien employees (nonresident alien exclusion). An employee who is not a U.S. citizen, and who is a nonresident alien for federal tax purposes and who receives no U.S. source income (as defined in IRC §§861(a)(3) and 911(d)(2)) from the employer is an excludable employee. See IRC §410(b)(3)(C) and Treas. Reg. §1.410(b)-6(c). Generally, income for personal services is not U.S. source income unless it is for services performed in the United States. Merely because a nonresident alien receives compensation from a U.S. company does not mean the individual has U.S. source income if the compensation is for services performed outside of the U.S. For more information on how to determine whether an alien is a resident alien or a nonresident alien for tax purposes, and whether a nonresident alien receives U.S. source income, see IRS Publication No. 519, U.S. Tax Guide for Aliens. Also see IRS Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.

I understand that to mean (assuming exclusion of non-resident aliens in the plan) that their non-US source income (and hours) don't count.  Here, you do not have US employees working for different US subsidiaries of the foreign owner, you have them working outside the US  and now (for the first time) having US source income and hours and that is a different situation. Does anyone disagree?

Larry.

[casey72]

I agree with traveler. That EOB excerpt above is not relevant to the service crediting issue. 

(1) Service with the foreign parent must be counted. As has been stated on other posts, service with all controlled group members, regardless of whether they are participating in the plan and regardless of whether they are foreign entities, must be counted for qualified plan purposes.  See 1.414(b)-1(a) (which ties in 1563(a) rules for qualified plan purposes, but disregards 1563(b) rules). 

(2) Unlikely an amendment is required since this rule comes from the Code - the rule is probably already in the plan, but this point should be confirmed (particularly if it's not a pre-approved document)