Foreign Company Sponsors 401(k)

Lets say a company in Abu Dhabi sponsors a 401(k) plan for all of its employees who work in Abu Dhabi who are US citizens. There is no connection to a US company, purely a Foreign entity. If this plan ran coverage, would it have to include all of its US citizens in coverage or could it include only employees who are actively participating?

I'm not even sure this is a legitimate question if I'm being honest.

This is not helpful in response to your question, but how is the plan going to comply with the requirement that the trust to be within the jurisdiction of US courts if there is no US connection?

Its invested in insurance products within the US?

While I lack expertise on tax law’s coverage and nondiscrimination provisions, one who knows those rules might consider these steps:

1)        Define the employer, applying IRC § 414’s provisions and rules implementing or interpreting those provisions.

2)        Once the employer is defined, define the to-be-measured workforce.  That might include USA citizens and resident aliens, and might exclude nonresident aliens.

A plan might exclude a nonresident alien who has no USA-source income.  Also, a plan might exclude a nonresident alien “if all of the employee’s earned income from the employer from sources within the United States is exempt from United States income tax under an applicable income tax convention.”  26 C.F.R. § 1.410(b)-6(c)(2).

3)        Once the workforce is defined, apply § 401’s and § 410’s rules to discern whether coverage and nondiscrimination conditions are met.

I agree with Peter's analysis, but isn't that just a way of saying, yes, the company will need to include all of its U.S. employees in the coverage analysis?

That's the general idea.

And perhaps all are highly-compensated (or none is highly-compensated).

Its a mixture of both groups for sure. I found myself confused in defining the employer since the employer had no connection to the US.

While not explicitly raised in my initial question, I found myself spinning my wheels on issues surrounding how a foreign country might defined an "employee" or "independent contractor". For example, if a certain country treats all employees as if they were independent contractors (even though the DOL/IRS might classify them as employees) or some mix of employee and contractor. Do we ignore the way they classify employees and view them through a common law US standard?

I think that is what caused my coverage confusion.