Is Metlife International Private Pension Taxed & Reported in the US?

Metlife International Private Pensions

While the United States has excellent pension and retirement plan opportunities for both citizens and noncitizens who work for US employers – many other countries do not offer the same opportunities. Some foreign countries such as Australia, Singapore, and the UK have excellent pension systems — in other countries, Taxpayers may have little choice but to purchase international pension plans/life insurance policies.  Oftentimes, these policies will be offered by the employer so that the employer can make some contributions on behalf of the employee and the employee can make contributions as well — resulting in significant retirement savings. The complexity kicks in when the foreign person within international life insurance policies such as the very popular MetLife pension plan policies is now a US person. These types of international policies are typically not considered qualified – and therefore do not receive the same type of benefits I sent them to act similar such as a 401(k) from Vanguard. Since the MetLife life insurance policy is one of the most common, let’s take a brief look on how it works.

What is a Metlife International Pension?

As provided by Metlife:

Pensions & Group Savings

• • • In today’s current economic climate, many people are concerned about how they’ll provide for their retirement. That’s why company pensions are highly valued by employees. By offering a company pension you’ll attract and retain the best people while also enhancing your corporate image.

    • Key Benefits

      • Cost-efficient, flexible and portable plans with multiple investment strategies

      • A simple way to fund mandatory End of Service Indemnity while protecting your company’s liquidity for day-to-day business operations

      • A guaranteed portable and affordable savings scheme for employees

      • All our pensions and saving schemes can be designed to suit your company’s unique needs.

International Pension Plan

• • • When an employee leaves your group pension scheme, they can opt to transfer to an individual pension plan. The International Pension Plan is the perfect solution. It complements your Group Allocated Annuity and MetLife Annuity Plan, allowing employees to continue saving for their retirement.

    • The International Pension Plan is a secure, portable investment that guarantees the principal*.

    • Highlights of the plan

      • A flexible investment accumulation account

      • The option to invest in USD or GBP

      • Benefits are payable anywhere in the world**

      • Partial surrenders are available

      • Five year minimum interest rate guarantees are applied to each deposit made during the policy year

      • Contributions are invested in high grade bonds

      • Bonuses are payable when investment performance is high

Foreign Mutual Funds in an International Retirement Plan

Foreign Mutual Funds within an international retirement plan may lead to an unnecessarily complex tax scenario. For example, ownership of Foreign Mutual Funds within the international retirement plan could lead to the dreaded PFIC tax situation (Passive Foreign Investment Company) – which results in tax-deferred treatment during the growth phase but then during the distribution time, taxpayers can end up paying double to triple what they would’ve paid if it was a US mutual fund. Exceptions and limitations to PFIC/8621 reporting may apply.

International Retirement Plan with Foreign or Domestic Stock, Bond, or US Mutual Fund

In general, whether stocks are US-based or foreign-based, accrued income will be taxed even during the growth phase. That is because the United States does not usually recognize an international retirement plan for tax deferral purposes the same as 401K or similar –and therefore even though the stock and bonds may be wrapped in an international retirement plan, they may be taxable unless the taxpayer was to make a treaty election — if they qualify.  

FBAR, FATCA & PFIC Reporting for International Retirement Plan

Since technically an international retirement plan is a foreign financial account, it is reportable on one or more international information reporting forms, such as the FBAR (FinCEN Form 114) and FATCA (Form 8938). The FBAR and Form 8938 or not mutually exclusive from each other — and therefore taxpayers may be required to file the FBAR on both forms. If the foreign investment also contains items such as mutual funds, ETFs, or SICAVs, then the investment may become subject to Passive Foreign Investment Company reporting on form 8621. There are some potential exceptions and exclusions from reporting on 8621, but they are limited.  In addition, the Internal Revenue Service does not require duplicative reporting of the same asset on Form 8938 and Form 8621— although if the taxpayer has multiple types of investments and categories of investments (RRSP, RRIF, Investment Accounts, etc.) — both forms may still be required. While the failure to report these accounts may result in significant fines and penalties, the Internal Revenue Service has developed various amnesty programs to assist taxpayers with safely getting into compliance with a reduced penalty, or even a complete penalty waiver.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax and specifically IRS offshore disclosure.

Contact our firm today for assistance.