Eligibility for A Participant Working Remotely Out of the US

We have a client that has had someone working abroad for them for a number of years.  Technically they haven't been on payroll, since they were living outside the U.S.  They have now moved to the U.S. and are working as a normal W2 employee.

The question is, what do we need to put in the Plan Document to allow this person to participate in the Plan immediately?  Do we have to amend the Plan to say that participants working remotely gain immediate entry into the Plan (while other employees have to wait the typical 1 year)? 

The issue is that compensation is defined as W2 salary, so technically they haven't been included in the Plan.

Thanks for your help!

They have the service for the sponsor but had been previously ineligible because they were a nonresident alien with no US source income?

Sounds like they're likely immediately eligible upon the switch to an eligible class of employees.

10 minutes ago, Bri said:

They have the service for the sponsor but had been previously ineligible because they were a nonresident alien with no US source income?

Sounds like they're likely immediately eligible upon the switch to an eligible class of employees.

Perfect, so nothing is needed.

I appreciate it!

13 minutes ago, Bri said:

They have the service for the sponsor but had been previously ineligible because they were a nonresident alien with no US source income?

Sounds like they're likely immediately eligible upon the switch to an eligible class of employees.

I dont think we know what their status is.

My initial read of OP was a citizen or resident who worked remotely from outside the US.  Its also not clear whether the employee had US income.

41 minutes ago, metsfan026 said:

We have a client that has had someone working abroad for them for a number of years.

As an employee?
As a Contractor?
Paid by whom?
Taxable where?
A US citizen? US Resident?  Foreign national without resident status?

41 minutes ago, metsfan026 said:

Technically they haven't been on payroll

What does technically mean in the context?  Were they on company payroll?
were they a contractor? Or paid by someone else?

*edited for clarity

1 minute ago, RatherBeGolfing said:

I dont think we know what their status.

My initial read of OP was a citizen or resident who worked remotely from overseas. Its also not clear whether the employee had US income.

As an employee?
As a Contractor?
Paid by whom?
Taxable where?
A US citizen? US Resident?  Foreign national without resident status?

What does technically mean in the context?  Were they on company payroll?
were they a contractor? Or paid by someone else?

 

They were paid by the company, but they weren't W2 nor were they given a 1099 due to living outside the US.  They were paid by the company, though.

Does the citizenship matter in terms of eligibility into the Plan?

Just now, metsfan026 said:

Does the citizenship matter in terms of eligibility into the Plan?

No, but it may help shed light on the remote work situation. 

If they were a US citizen living and working outside the US, its possible that you should have gotten a W-2.  The fact that you worked outside of the US does not mean that you don't get a W-2, there are other factors that determine that.

Depending on the circumstances, its quite possible that they have already met eligibility and should have been in the plan already.  

I think the issue is much more complicated than what do we need to do get them into the plan immediately. 

13 minutes ago, RatherBeGolfing said:

No, but it may help shed light on the remote work situation. 

If they were a US citizen living and working outside the US, its possible that you should have gotten a W-2.  The fact that you worked outside of the US does not mean that you don't get a W-2, there are other factors that determine that.

Depending on the circumstances, its quite possible that they have already met eligibility and should have been in the plan already.  

I think the issue is much more complicated than what do we need to do get them into the plan immediately. 

She was not a US citizen, she was working remotely while living outside the US.  She has since moved to the US, and is now a W2 employee.

1 minute ago, metsfan026 said:

She was not a US citizen, she was working remotely while living outside the US.  She has since moved to the US, and is now a W2 employee.

Us resident?

Citizens and residents are generally subject to US taxation even when working outside the US.

That aside, was she an employee or contractor prior to this?  

This is not an HCE right?

Just now, RatherBeGolfing said:

Us resident?

Citizens and residents are generally subject to US taxation even when working outside the US.

That aside, was she an employee or contractor prior to this?  

This is not an HCE right?

Not an HCE.

I guess a contractor.  What I was told was payments to her were considered an "expense".

I'm not sure if she's a US citizen now, but definitely a resident who is receiving a W2.

With so many outstanding questions, why not just do a simple plan amendment either naming or describing circumstances that only apply to this person, and saying that they are eligible for immediate entry. This is not setting a precedent for future situations, and avoids doing a time-consuming, extended analysis.  KISS!

9 minutes ago, Paul I said:

With so many outstanding questions, why not just do a simple plan amendment either naming or describing circumstances that only apply to this person, and saying that they are eligible for immediate entry. This is not setting a precedent for future situations, and avoids doing a time-consuming, extended analysis.  KISS!

That works for the purpose of adding them now.  I still question whether the employee should have already been in, and may be an issue for past years.

3 minutes ago, RatherBeGolfing said:

 

That works for the purpose of adding them now.  I still question whether the employee should have already been in, and may be an issue for past years.

I'm not sure if they gave her the option to defer and she just opted not to.  As long as she's eligible now, that's my only concern.

So the best option is to just amend the Plan stating that a participant that worked out of the country previously is immediately eligible to participate?  Something to that effect?

Like @Paul I said, the amendment should be drafted in such a way that it only applies to this person. "working out of the country" is to broad in my opinion, and could apply to future hires.

Quote

simple plan amendment either naming or describing circumstances that only apply to this person, and saying that they are eligible for immediate entry.

This is one of those the-more-you-ask type of situations...  but my thoughts... and they are just thoughts:

Regardless of how they were paid and how/if their compensation was reported properly (all due warnings/caution delved into above), was this person employed as an employee by the company or an ERISA affiliate (which would also include foreign entities for this purpose)?  Note an "hour of service" is usually one for which the Employer directly "or indirectly" pays the employee.   If so, they would have service for purposes of eligibility.  Assuming that they did not participate in the plan under a proper exclusion and now they are no longer excludable, then that service should permit them to participate in the plan immediately (i.e., they should have otherwise satisfied the plan's eligibility conditions and would have been a participant had they not been excluded during their period of "service").  Also, under most plans, if the Employer's records indicate this person was an employee and indicates the amount of service (assuming no fraud), normally those records are conclusive for purposes of plan administration. Plus, most plans have the Plan administrator/Employer interpretive "discretion" provisions that may assist.

If that person was not employed as an employee, as stated above, service should be able to be granted under an amendment tailored for this specific person, especially if they are an NHCE....  For example, a client of ours recently granted service to "All persons retained or employed by a Participating Employer as a consultant/independent contractor providing artificial intelligence and other technological consulting or development services for the benefit of the Employer or a Participating Employer in Australia during the period commencing on January 1, 2020 and ending on December 31, 2024."  This provision applied to 6 people (all NHCEs), but only one of which actually became eligible under the client's plan (due to their being hired by the client in a role in the States).