Foreign Entity & Plan Trustee

[JMP]

Hello, I have a client who owns a Foreign Entity in Australia.     The Employer is Australian, but owns a residence and lives in Manhattan.   The employer does Not have a US Resident Alien SSN.   How can they not have one of these, but have a US Payroll bank account?  

The Employer has 2 US Citizens and would like to establish a 401k plan for their US Citizens to participate in.  Over then next 12 months, they will be hiring 30-40 more US Employees.     So we are having a difficult time finding a platform for this type of client from a Trustee perspective.   Does anyone know what investment platform would allow for a Foreign Entity, with a US Residence obtain approval as Plan Trustee?

[Larry Starr]

2 minutes ago, JMP said:

Hello, I have a client who owns a Foreign Entity in Australia.     The Employer is Australian, but owns a residence and lives in Manhattan.   The employer does Not have a US Resident Alien SSN.   How can they not have one of these, but have a US Payroll bank account?  

The Employer has 2 US Citizens and would like to establish a 401k plan for their US Citizens to participate in.  Over then next 12 months, they will be hiring 30-40 more US Employees.     So we are having a difficult time finding a platform for this type of client from a Trustee perspective.   Does anyone know what investment platform would allow for a Foreign Entity, with a US Residence obtain approval as Plan Trustee?

Your data needs refining.

You have a US business, right?  It is paying US employees, right?  It has an EIN for that US business, right?  If that is all true, then who cares about Australia?  They have to be a US employer to have US employees.

So, what is the type of entity that the US business operates as?  A corp?  A sole prop?  etc.

Sounds like a 2 man 401(k) plan; what's the problem?  Set it up. Use the employer ID number for the business; get a trust ID number for the trust and use that for the trust.  

I guess I just don't understand what the problem is.  

Larry.

[JMP]

Who is allowed to be the plan trustee?

[Larry Starr]

6 hours ago, JMP said:

Who is allowed to be the plan trustee?

OK; now we need to know who you are and what is your role in employee benefits. This question reveals that your understanding of the issue you are raising is extremely limited. It would help to know why you are asking this question and what your involvement and role is.  Then, we might be able to help you.

 

[mming]

It seems to be an indicia of ownership issue.  Although the owner cannot be a sole trustee because he's not a US citizen or resident alien, he's allowed to appoint both himself and a US citizen as co-trustees.  I've seen instances where a foreign owner had his CPA or attorney, who were US citizens, be designated as a co-trustee to satisfy the requirement of having a trustee fall under the jurisdiction of US law.  In addition, certain US financial institutions can be appointed as co-trustees (for a fee) which would also be acceptable.      

[Luke Bailey]

Under ERISA, the assets have to be sited in U.S. That's pretty easy to do, but important.

The more complex thing is having a domestic trust, which is necessary for the plan to be qualified under 401(a). There's a "court test" and a "control test," both of which must be satisfied. See Treas. Reg. sec. 301.7701-7. The control test is pretty easy if the assets are sited in U.S. as required by ERISA, but the control test is complex and not easily satisfied if the individual who will in fact call the shots is not a U.S. person under IRC sec. 7701(a)(30). In these situations I have found that usually the only practical solution is to have a U.S. bank or trust company as trustee, even if it is  a completely directed trustee, and even if the plan administrator who will direct the trustee is dominated by foreign persons. See Treas. reg. 301.7701-7(d)(1)(iv) and (v), especially Example 5 of 301.7701-7(d)(1)(v).

[Peter Gulia]

To read the rule Luke Bailey describes:

https://www.ecfr.gov/cgi-bin/text-idx?SID=d7e5f18218c1cca961286a6fa1b6f4cf&mc=true&node=se26.20.301_17701_67&rgn=div8

[Larry Starr]

18 hours ago, mming said:

It seems to be an indicia of ownership issue.  Although the owner cannot be a sole trustee because he's not a US citizen or resident alien, he's allowed to appoint both himself and a US citizen as co-trustees.  I've seen instances where a foreign owner had his CPA or attorney, who were US citizens, be designated as a co-trustee to satisfy the requirement of having a trustee fall under the jurisdiction of US law.  In addition, certain US financial institutions can be appointed as co-trustees (for a fee) which would also be acceptable.      

Folks, I am well aware of the issue of indicia and while that may be the issue, I asked the poster to explain in more detail the particulars as I would rather hear from the person what THEY think is the problem and not make assumptions ( you know what happens when you "assume").

As to the trustees, I have never had a situation where we can't find someone else in the business to also be a trustee if that is what the issue is.  No corporate trustee (and the added expense) has ever been necessary in my career to solve this problem.  But the poster needs to give us some more details so we can better advise.  I'm going to bet we can find an easy solution once we know the details.

[Luke Bailey]

1 hour ago, Larry Starr said:

As to the trustees, I have never had a situation where we can't find someone else in the business to also be a trustee if that is what the issue is.  No corporate trustee (and the added expense) has ever been necessary in my career to solve this problem.  But the poster needs to give us some more details so we can better advise.  I'm going to bet we can find an easy solution once we know the details.

Larry, if you go that route then you still (in theory) must demonstrate that the U.S. trustees have the authority to control all substantial decisions. See 301.7701-7(a)(ii) and (d)(i), (ii), and (iii). That requires multiple trustees and will require special provisions in trust document. It's always seemed to me that actual compliance with the regs, and demonstrating it, was so cumbersome that appointing a U.S. corporate, directed, trustee was the more practical solution.

[Larry Starr]

5 hours ago, Luke Bailey said:

Larry, if you go that route then you still (in theory) must demonstrate that the U.S. trustees have the authority to control all substantial decisions. See 301.7701-7(a)(ii) and (d)(i), (ii), and (iii). That requires multiple trustees and will require special provisions in trust document. It's always seemed to me that actual compliance with the regs, and demonstrating it, was so cumbersome that appointing a U.S. corporate, directed, trustee was the more practical solution.

Luke, like I said, we need more info.  We know nothing about the business.  What does it do? Does it have corporate officers who could be the trustees and would be in control and be US citizens?  Once we have all the info, a solution will probably present itself.  Nowhere was it said that this non-citizen wants or needs to be in charge of the trust.

[JMP]

Thanks All for the responses....I am assisting a Financial Advisor who is trying to set up a 401k plan, but does not currently have anyone else to be named as Trustee of plan, so I was looking to what other options they had (since he is not a US Citizen himself).  

[Luke Bailey]

Good luck, JMP. Read the regs I cited carefully.

[Larry Starr]

1 hour ago, JMP said:

Thanks All for the responses....I am assisting a Financial Advisor who is trying to set up a 401k plan, but does not currently have anyone else to be named as Trustee of plan, so I was looking to what other options they had (since he is not a US Citizen himself).  

"Financial advisor trying to set up a 401(k) plan" is often like the butcher at the supermarket deciding to do brain surgery.  Both of them cut meat so how difficult can it be!?