Defined benefit pension - form 8938

I have two defined benefit pension schemes in the UK, one is deferred and one (teacher pension) I am currently an active member. I've always been confused about reporting these on FBAR and 8938. Last year I reported them on the FBAR with a value of zero for each because I'm scared of scary IRS fines, but I didn't meet the threshold for 8938 so nothing there.

I've always been confused about the 'fair market value' of the pension though. I can see my statement that says 'you might get' a pension of £X amount per year when you retire and I have a death in service benefit of a multiple of my salary. This is now fairly substantial so if this is my 'fair market value' of the pension, I will need to file 8938. I wasn't sure about this being the value of the pension because it only exists if I die while working and disappears if I stop working.  I guess I could file 8938 in an abundance of caution? Has anyone else been in this position? I had an accountant do my taxes a few years ago and he didn't mention the need to file for this pension, but I mainly employed him for a separate issue.

Thanks!

Over the years I have never reported my UK defined benefit pensions when filing FBAR and the only time I filed 8938s was the first full year back when we exceeded the limit by virtue of moving house money over. That year we had a dual qualified tax pro do our taxes and I was now in receipt of one of my 2 UK pensions and while we had an 8938 for each of our bank accounts (I split the house money among a number of accounts to keep within the FCS £85k insurance) there was no 8938 filed for my 2 UK pensions. (I was receiving one and the other was due until a couple of years later).

I am not a tax pro just reporting my experience over the last 33 years of being liable to do FBARs.

I have two defined benefit pension schemes in the UK, one is deferred and one (teacher pension) I am currently an active member. I've always been confused about reporting these on FBAR and 8938.

I've always been confused about the 'fair market value' of the pension though.

Although the FBAR instructions can be confusing, it's generally accepted that "defined benefit" plans do not need to be reported on FBAR. Defined contribution plans are another matter.

"Reporting a foreign retirement plan will differ depending upon the type of plan and form. A foreign retirement plan is only reportable on an FBAR if it is associated with a segregated foreign retirement account, since it is the foreign account—not the plan itself—that triggers the obligation to file the FBAR.........

Neither a foreign employer-created pension (which involves only a right to receive payments on retirement) nor a foreign equivalent of Social Security would qualify for reporting on an FBAR, however, as there is no foreign account to report in those situations."
(bold mine)

https://www.cpajournal.com/2020/03/03/reporting-foreign-retirement-plans-on-required-information-returns/
scroll down to: Reporting Different Types of Plans

As for 8938 - yes, both defined benefit plans and defined contribution plans are reportable.

As for the reporting threshold, the value of the plan is determined (according to the instructions):
If you are receiving benefits:
"If you do not know or have reason to know based on readily accessible information the fair market value of your interest in a ..... foreign
pension plan, or foreign deferred compensation plan during the tax year, the value to be included in determining the total value of your specified foreign financial assets during the tax year is the fair market value, determined as of the last day of the tax year, of the currency and other property distributed during the tax year to you."
(bold mine)

This refers to pre-drawdown: (no benefits being collected).
"If you received no distributions during the tax year and do not know or have reason to know based on readily accessible information the fair market value of your interest, use a value of zero for the interest."

https://www.irs.gov/pub/irs-pdf/i8938.pdf
page 4

So, my interpretation is for pre-drawdown: it's as you say, the fair market value of the plan. I would interpret that as what is the plans value if it were to be transferred to another scheme. If you cannot obtain such a transfer value from the company, or have no other way to value it, use "0".

Once benefits are being paid, it's the amount of benefits received, in $US at Treasury's 31 December exchange rates, for the tax year. I have 3 such foreign pensions and report them this way.

If the above total value of the plans, plus aggregate value of all bank accounts and other foreign assets is above your particular filing threshold, then 8938 would be required.

Thank you both. Not reporting the pension has been my interpretation in past years, I just always overthink it every time tax season rolls around. I suppose all I can do is interpret the information given by the IRS as faithfully as possible. I don't have enough other reportable assets for 8938, just FBAR.

Thank you both. Not reporting the pension has been my interpretation in past years, I just always overthink it every time tax season rolls around. I suppose all I can do is interpret the information given by the IRS as faithfully as possible. I don't have enough other reportable assets for 8938, just FBAR.

I have to do an FBAR every year and I do so making a copy of the previous year pdf and updating balances, adding and deleting accounts as required. Since the rules state that all accounts have to be reported then if I have zero balance accounts that are still open I will list them as well.

Looking at form 8938 and the accounts I reported in 2017. The tax preparer didn’t list the defined benefit pension I was taking and even if I wanted to report it on the 8938 I can’t see where it would be reported since the options on which line on the 1040 is it reported does not include the line where I actually do report it which is along with my other 1099-R income since I submit a substitute 1099-R

......................and even if I wanted to report it on the 8938 I can’t see where it would be reported since the options on which line on the 1040 is it reported does not include the line where I actually do report it which is along with my other 1099-R income since I submit a substitute 1099-R

Fun, isn't it.

From the 8938 instructions:
"Interests in Foreign Pension Plans and Foreign Deferred Compensation Plans"
"Report in Part VI your interest in the foreign pension plan or foreign deferred compensation plan. Do not separately report the assets held by the plan."
[Under Specified Foreign Financial Assets on page 7.)
https://www.irs.gov/pub/irs-pdf/i8938.pdf

So, is there an interest in a foreign pension plan? If no, sleep well. If yes, is an 8938 required?

If it's decided there is an interest, complete Part VI of 8938 (IF above the relavent 8938 reporting threshold).

Before we go any further, my impression of the 8938 instructions - they're a total basket case for folks like us!

If more than 1 foreign pension, the additional continuation page will be needed. The total from the pension(s) is then listed in Part III, (2), (d) - Other foreign assets, other income. Where on the 1040 are the distributions declared for tax? (This is the reason I list part of my foreign pensions on the "other income" line of Schedule 1, even though I have no US pensions other than SS.) If there are no distributions and no FMV, the amount in (C) for reporting is "$0", so there is obviously no form or line.
https://www.irs.gov/pub/irs-pdf/f8938.pdf

For 25 years I thought the US tax return for reporting from abroad made sense and was logical and FBAR was simple..........then I retired abroad,........and then, to top it off, FATCA came along.

Fun, isn't it.

From the 8938 instructions:
"Interests in Foreign Pension Plans and Foreign Deferred Compensation Plans"
"Report in Part VI your interest in the foreign pension plan or foreign deferred compensation plan. Do not separately report the assets held by the plan."
[Under Specified Foreign Financial Assets on page 7.)
https://www.irs.gov/pub/irs-pdf/i8938.pdf

So, is there an interest in a foreign pension plan? If no, sleep well. If yes, is an 8938 required?

If it's decided there is an interest, complete Part VI of 8938 (IF above the relavent 8938 reporting threshold).

Before we go any further, my impression of the 8938 instructions - they're a total basket case for folks like us!

If more than 1 foreign pension, the additional continuation page will be needed. The total from the pension(s) is then listed in Part III, (2), (d) - Other foreign assets, other income. Where on the 1040 are the distributions declared for tax? (This is the reason I list part of my foreign pensions on the "other income" line of Schedule 1, even though I have no US pensions other than SS.) If there are no distributions and no FMV, the amount in (C) for reporting is "$0", so there is obviously no form or line.
https://www.irs.gov/pub/irs-pdf/f8938.pdf

For 25 years I thought the US tax return for reporting from abroad made sense and was logical and FBAR was simple..........then I retired abroad,........and then, to top it off, FATCA came along.

I'm sure what you do is acceptable for the IRS. No argument there.

I've only ever met the threshold for an 8938 once and don't expect to again in my lifetime. I also think that what the tax pro did was acceptable. As well as reporting the pension as a 1099-R the accompanying 4852 with that substitute 1099 clearly explains that this is a foreign pension from the UK so I can't be accused of not reporting a foreign pension.

In your example above with a deferred compensation plan where you have not started receiving or drawing from the plan, what do you put for where it is reported on the 1040? I suppose you could name it in Other income and put zero as the taxable income.

In your example above with a deferred compensation plan where you have not started receiving or drawing from the plan, what do you put for where it is reported on the 1040?

Ah ha, and now we get to the mysteries of 8938. As I said, it's a basket case. That's why I didn't mention it in the above post,...... who knows.

I suppose you could name it in Other income and put zero as the taxable income.

I'm sure people have done much stranger things trying to adhere to reporting in fear of the dreaded penalties. This is when forced information reporting of same country accounts by all USCs residing abroad shows itself as an exercise to far.

Probably me maybe being ultra cautious but I put all of my pensions on my FBAR reports (defined benefit & defined contribution) - but ticking value unknown for defined benefit. I then replicate all the FBAR information on form 8938 but value the defined benefit pension within the $50k brackets  - nice if it was worth more than $200k  Form 8938 is a pain because it's a new form each year unlike the FBAR - running at 8 pages now!

I also take the Treaty position on pensions - not sure if that is of any benefit - I guess the proof will come this year and next when I start receiving pensions and go into drawdown