A company has employees who are not citizens of the United States and who do not perform any services in the United States. The employees are paid in U.S. dollars although they are not subject to income tax withholding, FICA etc. The employees are not currently in the qualified plans of the company (a 401(k) and a defined benefit), which I think is OK since I believe they would be nonresident aliens. The question is: Can they be allowed to participate in the pension and 401(k) plans? If they can participate legally, are there other issues that would make it impractical?

I am not an expert in this area, so don't take this as fact. We had the ocassion to look into this and our legal department felt that deferral of non-US income would not meet the qualification standards for a US 401(k) plan.

We were also told, but did not verify this, that DB benefits would be immediately taxable for a Canadian citizen.

Once again, I cannot confirm either of these to be factual, but here are two issues to at least look into.