Non-U.S. Citizens As Plan Trustees?

[mming]

A Canadian citizen wants to sponsor a qualified plan for the U.S. corporation that he owns. He has a U.S. social security number and pays U.S. taxes. Although he owns a house in the U.S., his main residence is in Canada. He and his wife (also a Canadian citizen) will be the only participants in the plan and they would like to also be the trustees. Can they be trustees even though they are not U.S. citizens? Where in the regs is this addressed?

[Guest PeterGulia]

If the plan will be governed by ERISA, ERISA generally requires that the indicia of ownership of plan assets be in the USA. Also, if decisions concerning a plan trust are made by a non-USA person, the trust might be a foreign trust for USA income tax purposes, which might be partly inconsistent with usual tax-qualified trust treatment.

Consider whether it may be simpler for the USA corporation to serve as both plan administrator and plan trustee. Then get a legal opinion about whether this would be sufficient to comply with ERISA 403 and to avoid the IRC's foreign trust treatment.

[Kirk Maldonado]

Under some state laws, a corporation cannot serve as a trustee.

[Guest PeterGulia]

Because I assumed that the inquirer would seek the advice of an expert lawyer, I didn't want to weigh down the quick starting point with the familiar but complex state law question.

Kirk is right that some states preclude a regular business corporation other than a bank or trust company from serving as a trustee. Some of those states make it clear that a corporation can serve as trustee of that corporation's own employee benefit plans. In other states it's ambiguous. Some lawyers work with that ambiguity; others don't.

But again, that's why this is a topic for which a plan sponsor needs legal advice. As I mentioned, the plan sponsor will want a legal opinion that the trust is a legally enforceable trust (as required by ERISA 403), and that the indicia of ownership of plan assets is in the USA.