Two questions on 410(b) testing:

First, if a U.S. citizen is transferred to a foreign subsidiary (say in Japan), my understanding has been that the employee need not be included in the ratio percentage test. However, a recent question has raised a question in my mind as to the authority for this result. Is this the correct result and can anyone provide the regulatory authority on this issue.

Second, if a foreign citizen transfers to the U.S. parent and is working in the United States, the foreign citizen becomes a resident alien employee and as an employee that is not a nonresident alien, my understanding has been that the employee must be included in the ratio percentage test. Is this the correct result?

on your first question, it appears that for 410(b) purposes, the person that transferred out of the country does not appear to be an employee in the eligible group; not employed by the plan sponsor any more unless there is specific plan language that gives that person US credit.

Both employees are *not* excludible employees for purposes of section 410(b). All employees of the controlled group -- including foreign corporations -- are taken into account with certain exceptions. The relevant exception here is for nonresident aliens with no U.S. source income. In your first question, the employee is a U.S. citizen working for the controlled group so he is not excludible (unless he is a collectively bargained employee, under age 21 and 1 year of service, etc.). The second employee is working in the U.S. and is receiving U.S. source compensation. He is also not covered by the exclusion for nonresident aliens.

Hopefully you are passing coverage testing by such a wide margin that including these employees won't cause a failure . . .