Employee Plans News - March 20, 2012 - EPCU Project on Domestic Trusts Maintained By Foreign Employers
The Employee Plans Compliance Unit has completed its first international project to determine if:
- foreign entities are maintaining domestic trusts,
- these entities are complying with the domestic trust rules, and
- an employer whose EIN begins with 98 is a foreign employer or has a foreign affiliation.
The project also reviewed the employer’s plan number, plan type and Form 5500 filing history.
EPCU sent contact letters to a sample of employers with an EIN beginning with the number 98 that had indicated on Forms W-2, Wage and Tax Statement, that their employees were covered by a qualified retirement plan. EPCU asked plan sponsors whether they were foreign employers and if the trust associated with their retirement plan was a domestic trust.
Some of the employers we contacted confirmed they were foreign employers, while others said they were never foreign employers. Many of the employers who said they weren’t foreign employers at some point had:
- foreign employees
- a foreign subsidiary
- foreign incorporators
- a foreign mailing address
- been acquired by a foreign employer
- previously been owned by a foreign employer
- used a foreign service provider or third party administrator to administer their plan
Almost all the employers sponsored 401(k) plans, but there were some that sponsored profit-sharing, money purchase pension, defined benefit and SIMPLE IRA plans. Regardless of whether they were foreign or not, the employers we contacted understood and complied with the requirements to maintain a domestic trust.
The plan sponsors required to file Form 5500, Annual Report/Return of Employee Benefit Plan, had timely and accurately filed their returns. We referred the small percentage of cases that appeared noncompliant to Employee Plans Examinations.
Overview of domestic trust rules
A trust is a domestic trust if:
- a U.S. court can exercise primary supervision over administration of the trust, and
- one or more U.S. persons have authority to control all of the trust’s substantial decisions.
In order to be an Internal Revenue Code section 401(a) qualified plan, a stock bonus, pension or other profit-sharing plan’s trust must be a domestic trust.
Contact the EPCU
You will soon find the summary report of this project and more information about the work we do on the EPCU Web page. Email us your questions about this project and please include the words “Domestic Trust” in the subject line.