For multinational companies, growing a business means leveraging the right talent in the right place. In the world of “global nomads” — expatriates and third country nationals who spend much of their working lives away from their home country — the provision of future financial security becomes ever more important.
To attract and retain the right talent willing to move across borders, whether on a temporary or permanent basis, employers need to provide competitive compensation packages that include a retirement savings component.
Expats and retirement
Compensation has evolved substantially over the years, with the focus shifting away from relocation allowances to global special benefits. As pension debates in many countries bring retirement planning to the fore, employer-sponsored retirement benefits are often seen as key in a competitive remuneration program. Many mobile employees do not remain long enough in a given location to build an old-age retirement benefit under the local rules, and local social legislation and related tax regimes often complicate their participation in locally organized retirement plans.
Inclusion of U.S. Taxpayers
Because U.S. citizens and U.S. tax residents are being taxed on their worldwide income, additional reporting requirements apply to these employees. As a result, a well-designed 402(b) solution must provide for simplified tax reporting. The selected 402(b) must be one that requires the individual to file FinCEN 114 and IRS 8938 only and for the employer to have no reporting requirement.
Where employees in today’s world are almost without exception subject to tax on worldwide income in their resident country, and U.S. persons are subject to the Foreign Account Tax Compliance Act (FATCA), U.S. Tax, resident country tax and worldwide income tax in the U.S. and their country of residence – this plan delivers a truly cross-border U.S. and Foreign employee solution.
Both the mobile U.S. person and foreign employee need an effective tax neutral and or tax deferred retirement plan. The choice of investment tools and assets must reflect an internationally diverse membership. The decision for a retirement planning must also explicitly address issues of asset protection and survivorship – areas often unwisely overlooked or discounted in plan evaluation.
The outcome is a specific 402(b) plan that delivers the top functions for mobility and talent globally, which include:
- tax deferred gains and accumulations for U.S. persons and all nationalities
- portable without tax consequence across borders
- contributions without tax reporting on participation amount
- not included in worldwide assets of Employer or Employee
- deferred income reporting on IRS Form 8938
- deferred reporting to the Treasury on FinCEN 114