Is a UK university pension plan a PFIC?

I'm grateful to this website (Lizzit and Guya) for explaining how to deal with contributions to a UK pension plan when I do my US taxes, however, I'm now worried about how the IRS will view the UK's University Superannuation Scheme. Its a pension plan that invests in UK stocks, so its like a mutual fund and I'm worried that it will be seen as a PFIC. I've been careful to invest my after tax money in US based mutual funds, but what about my USS pension plan?

To my mind there is no proper answer for many UK pension plans, but the USS is probably OK (I assume it is funded)?

To my mind there is no proper answer for many UK pension plans, but the USS is probably OK (I assume it is funded)?

Yes its funded, its a defined benefit plan (%age of salary times years of service) that is funded as you go along, uni kicks in about 14% and employee contribution is 6%.
The thing that worried me is that the contributions are pooled and invested in lots of equities, which sounds like a PFIC to me, so I hope as its inside a bona fide UK pension plan its ok. It would be a real bummer if after putting decades of contributions in USS the IRS decided its a PFIC............

Most advisers would believe that the USS falls within IR Code Section 402(b) on the basis that it is a non-exempt employee trust.

If this worries you then the only solutions are:
1. To ask the IRS to comment in writing
2. To ask the IRS to give you a Private Letter Ruling
3. To obtain legal counsel's opinion

Yup, Guya.  That's one way to interpret the tax code.  The most conservative way, which of course, is rarely in the taxpayer's benefit and always in the IRS's.

Of course, there's more than one way to interpret tax code. 

The way everyone other tax professional I've chatted with treats a UK superannuation plan is to treat it as an unqualified pension plan, which is the determination the Big Four have come up by following the technical guidance issued with the 2001 US/UK tax treaty in the 2001 Technical Explanations.

As we've both advised you before, MasterBlaster, you can't get a definitive answer online, you get conflicting advice online, you can't rely on Guya or me for the right answer, and you sure as shooting shouldn't rely on the IRS for the right answer.  The only advice you can trust is advice you pay for, because then you have recourse (law suit) for any bum steers.

Speaking of bum steers, I'm in Colorado for Thanksgiving.  Yesterday I had "bull fries" (look that up on the internet), bison burger, and venison steak.  How I miss living in America!

Phew! I'm glad we agree.  A non-US qualified plan that is funded and employer-sponsored such as the USS is one that falls under IR Code Section 402(b).  Plain, simple and nothing (directly) to do with the US/UK tax treaty since we are talking about the US domestic tax treatment.

Because it is a non-US qualified plan the employer's contributions are treated as curently taxed income - unless I have missed the point...

Now it is possible that there may be a US tax adviser out there that takes a different view (or indeed the IRS may in the future), but if you take the view that Lizzit & I do then this is to your benefit - but not the IRS.

Aw heck, we manage to agree while sounding like we totally disagree.  That's the fun thing about forums.

A non-US qualified plan that is funded and employer-sponsored such as the USS is one that falls under IR Code Section 402(b).  Plain, simple and nothing (directly) to do with the US/UK tax treaty since we are talking about the US domestic tax treatment.

Because it is a non-US qualified plan the employer's contributions are treated as curently taxed income - unless I have missed the point...

Thanks to your other posts I was already going to include contributions to the USS plan as income on my US taxes and offset any payments with the excess tax credit I get for UK income tax I've already paid. Its a bit more complicated that just using the foreign earned income exclusion and I'm mystified why the IRS doesn't allow pension contributions to be included in the foreign earned income exclusion; I imagine if the money hasn't been taxed the IRS doesn't consider it to have been earned

One thing I realized is that if I take the tax credit rather than the income exclusion I will have earned income on my US taxes, so does that mean I'm allowed to fund a ROTH?

You've settled my mind wrt the status of USS its a non-US qualified pension plan, 402b.

Happy Turkey Day