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Topic: FBAR and form 8938  (Read 5363 times)

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Re: FBAR and form 8938
« Reply #15 on: April 25, 2016, 12:53:29 PM »
The OP told us he had contributed to a defined benefit scheme. Here is a copy of my enquiry to fbarquestions@irs.gov on 19 June 2014.

MY QUESTION: Good morning. I hope you can please help me with this question.

Within the FBAR instructions, the definition of a Financial Account, I read "A financial account includes, but is not limited to, ..."

I would like to know if my UK employer-provided pension plan is a reportable account for FBAR. I am not yet retired so I have no access currently to any funds in this account. My eventual pension will be based on my years of service and salary at the point of retirement.

ANSWER: Generally, most governmental and employer sponsored foreign defined benefit retirement accounts are not reportable.   A foreign defined benefit plan is not designated for any particular individual.  The plan covers multiple individuals in a general pension account.  With no account to report, no FBAR  is required.

However, a foreign defined contribution retirement account held by the individual (similar to IRA) should be reported.  These accounts are generally held in the individual's name or for the individual's benefit and allows the individual participants to direct the investment of contributions made to the employee plan.  In this case, the individual participant has a "financial interest" and therefore is required to file the FBAR.

Sincerely,

Claudia Williams (Merritt)
Senior BSA Tax Law Specialist
CTR Operations
BSA Compliance Department

RW,

Thank you.  I am not familiar with UK pensions.  The OP refers to a “final salary pension scheme.”  When I Google this term, it does seem like people refer to it as a defined benefit plan.

To me it seemed contradictory to be making contributions into a defined benefit plan.  If the contributions are voluntary, I assume that the benefit must be partly based on how much was contributed.  I was thinking that perhaps it could be some sort of “hybrid” plan. 

However, my thinking was not correct.  Even the I.R.S. says that for defined benefit plans “Sometimes, employee contributions are required or voluntary contributions may be permitted.”  https://www.irs.gov/Retirement-Plans/Choosing-a-Retirement-Plan:-Defined-Benefit-Plan


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Re: FBAR and form 8938
« Reply #16 on: April 25, 2016, 02:11:44 PM »
Thank you.  I am not familiar with UK pensions.  The OP refers to a “final salary pension scheme.”  When I Google this term, it does seem like people refer to it as a defined benefit plan.
Yes they are one and the same.

The terms of the plan at my company were that the employee pays something and the employer pays something. But the pension you eventually get out is purely based on years of service and final salary at point of retirement. So for the employee it is sort of independent of what you paid in.

These pension schemes have to be assessed every few years by actuaries to determine whether they can meet their funding requirements. That makes them very expensive as lifespans are increasing and a lot of them are running deficits which have to be made up by the company. For that reason many defined benefit schemes in the UK are being phased out and replaced by defined contribution schemes. These are much cheaper to the company but not as good from the employee's perspective as the outcome isn't guaranteed.

For the FBAR it would be difficult to declare the defined benefit pension. As RW quoted, they have no specific value to the individual until retirement.


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