benefits
Investment Issues
CHALLENGES WITH CROSS-BORDER PENSION PLANS
Are you an HR advisor for an organization that straddles
the Canada-U.S. border? Do your Canadian employees
often take on assignments for a lengthy time in the
U.S., or do American employees ever assume postings in
Canada? If so, significant issues can arise for expatriate employees
who have pension and retirement programs established by their
employer. This is especially true when the employee returns to
their home country.
Many cross-border workers are caught in a frustrating, confusing
web of compliance and regulatory issues, sometimes with
bizarre complications. This happens because the regulators want
to catch money launderers, terrorist financiers and tax cheats, but
they create havoc in the personal financial planning of innocent
business people.
HR professionals are well positioned to help their expatriate
staff navigate the dilemma that occurs when someone wants to
come back across the border. Indeed, many situations can result
for employees with retirement plans provided by their companies,
such as Defined Contribution or Defined Benefit Pensions
or group RSPs in Canada, or 401(k) and IRAs in the U.S. Often,
the issues will not be identified by a tax or legal advisor because
these people may not be well versed in such scenarios.
For one example, a group of executives were returning home to
Canada after successful careers in the U.S. They established residency
back in Canada, but discovered that their IRA provider
would no longer maintain their accounts.
The issue is not that the IRA or 401(k) becomes immediately
taxable. Once the plan participants return
to Canada, they may continue to enjoy tax-deferral
benefits of their IRA, 401(k) plan and Roth
IRA balances just as if they were still U.S.
residents. This explains why it often goes
unnoticed by many tax and HR professionals
who advise employees
about moving across the border.
In another example, a certified professional accountant told
their client not to expect adverse tax consequences when returning
to Canada. Imagine how shocked this person was to receive a
notice from her U.S. brokerage firm that her IRA had to be transferred
or moved or within 90 days. If not, it would be cashed out,
and she faced a tax that she didn’t expect of over a quarter-million
dollars.
To the untrained eye, this may not initially look like a tax problem,
but a regulatory-compliance issue that later becomes one. By
then, however, it may be too late.
U.S. brokers will not maintain IRA accounts for individuals
who move back to Canada because of recent changes from the
Canadian Securities Administrators regarding the registration requirements
for all broker-dealer and advisor firms doing business
in Canada.
How big a problem is this? Many brokers figure
it’s not worth the trouble – in cost and complexity
– to retain the client’s accounts after
reviewing exemption requirements for
By Darren Coleman
Michael C. Gray/Shutterstock
HRPATODAY.CA ❚ MAY/JUNE 2015 ❚ 51