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Employee Plans Compliance Unit (EPCU) - Completed Projects - Project with Summary Reports - Domestic Trusts Maintained By Foreign Employers

Domestic Trust Project Overview

The Employee Plans Compliance Unit (EPCU) Domestic Trusts Maintained By Foreign Employers project began in December 2009 and ended in June 2010. This Project was the first international project developed by EPCU for the Employee Plans (EP) international compliance initiative.

Compliance contact letters were sent to over 300 employers whose employer identification number (EIN) began with the number 98 and who filed Forms W-2 indicating their employees were covered by a qualified plan. The employers were asked to answer questions about themselves and their qualified plan’s trust to determine if this was a domestic trust maintained by a foreign entity. EINs beginning with the number 98 may identify foreign entities that maintain domestic trusts in the U.S. since IRS previously only issued EINS beginning with the number 98 to entities that had some type of foreign affiliation.

Results

The project goals were met, and focus points for EP were identified including recommendations to enhance compliance. Responses received showed that EINs beginning with the number 98 are not necessarily associated with foreign employers and can’t be relied on to define a domestic trust population maintained by foreign employers. Some of the employers contacted confirmed they were foreign employers while others said they were never foreign employers. However, many of the employers that were not foreign employers had, at some point, a foreign connection and that may account for why they were issued EINs beginning with the number 98.

From the responses, these include domestic employers that:

  • had foreign employees;
  • were acquired by a foreign employer;
  • had a foreign subsidiary;
  • were previously a foreign employer;
  • had foreign incorporators;
  • had a foreign mailing address; or
  • used a foreign service provider or third party administrator for their plan administration.

Mostly all of the plans were Code section 401(k) plans, but there were some money purchase, profit sharing, defined benefit and SIMPLE. Regardless of whether they were foreign or not, the employers contacted did understand and were in compliance with the requirements to maintain a domestic trust.

For plans with a filing requirement, the Forms 5500 appeared to be current and properly filed. Referrals for Examination were made on small percentage of cases that appeared noncompliant.

Background

The Project was designed to obtain information about domestic trusts maintained by foreign employers. This information would enable EP to have a better understanding of the international sector and help EP in assessing the need to develop further tools, guidance and enforcement efforts.

The Project goals were to determine:

  • if EINs beginning with the number 98 are associated with domestic trusts maintained by foreign employers; and
  • their number, plan types, and related reporting history.

A trust is a domestic trust if:

  • A court within the U.S. is able to exercise primary supervision over administration of the trust; and
  • One or more U.S. persons have authority to control all substantial decisions of the trust.

A trust forming a part of a stock bonus, pension, or other profit-sharing plan of an employer must be organized in the United States. A pension or retirement plan with a foreign trust cannot constitute a qualified plan within the meaning of Code section 401(a).

The EPCU reviewed and analyzed the compliance check responses to determine if the employers were foreign employers and, if so, were they in compliance with the domestic trust requirements or if corrective action was needed. Since a compliance check is not an examination, certain form and operational mistakes can still be self corrected using EPCRS.

Page Last Reviewed or Updated: 03-Nov-2014