Compensation for HCE determination

Parent Company is in Korea. US Company is part of the controlled group.  They have some Korean Employees who soley worked in Korea for 2024.  They are now in the US working and getting paid US dollars.  For 2024 HCE determination, do we consider 2023 Korean income?

A few questions the US retirement plan’s administrator might consider:

For a worker from Korea, is she an employee of the same corporation that maintains the plan, or is she an employee of something else and detailed to the US operation?

If the worker from Korea is employed by a something else, is it a part of the same § 414(b)-(c)-(m)-(n)-(o) employer as the organization that maintains the US plan?

Regarding the US, is the worker from Korea a resident or a nonresident? (That a worker lives in the US now does not by itself mean she is a resident.)

Is the worker’s compensation earned income from sources within the United States? (That a worker is paid in US$ does not necessarily mean the pay is from a US source.)

How does the parent corporation classify the worker from Korea?

Is there an income tax treaty that affects anything about this situation?

This is not advice to anyone.

Once you have your facts lined up...

“Compensation” for HCE determination means “… compensation within the meaning of section 415(c)(3) without regard to sections 125, 402(a)(8), and 402(h)(1)(B) and, in the case of employer contributions made pursuant to a salary reduction agreement, without regard to section 403(b).” 

The definition of compensation found in IRC § 415(c)(3)(A) includes all compensation paid by the “employer.”  The "employer" for these purposes includes foreign companies in the controlled group.  A plan may not automatically exclude compensation from foreign companies in the controlled group when determining HCE status. Furthermore, according to Reg. 1.415(c)-2(g)(5), the determination of whether an amount is treated as compensation under paragraph (b)(1) or (2) of Section 415 is made without regard to the exclusions from gross income under sections 872, 893, 894, 911, 931, and 933. This means 415 comp includes foreign earned income even if it is not included in gross income for regular tax purpsoes.

However, there is an exception to the requirement to include foreign income in the determination of HCE status found in 1.415(c)-2(g)(5)(ii) under which compensation earned while a nonresident alien was not eligible for the plan can be excluded if the nonresident alien has no U.S. source income for the year.  Note that this rule must be applied uniformly to all similarly situated employees.