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Hi folks,

Tried this on the Tax Strategies board to no avail. Perhaps someone here has some insight:

The Hong Kong gov't is instituting something called the Mandatory Provident Fund--all employers have to contribute the lesser of 5% of a worker's salary or HKD$1000 (about USD$125) per month to what is essentially a retirement fund. Workers have to do the same. Such a thing is brand new here. We've not been covered by any such thing up to now.

Would the IRS consider this a 'qualified retirement plan'? (As you might guess, this is an IRA eligibility question. We've qualified for deductible IRAs each year because we weren't covered by any plan.) Anyone have a clue whether the plan described will meet the IRS's 'qualified' standard? Or how I might research this?


kse4
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"The Hong Kong gov't is instituting something called the Mandatory Provident Fund--all employers have to contribute
the lesser of 5% of a worker's salary or HKD$1000 (about USD$125) per month to what is essentially a retirement fund. Workers have to do the same. Such a thing is brand new here. We've not been covered by any such thing up to now.

Would the IRS consider this a 'qualified retirement plan'? (As you might guess, this is an IRA eligibility question. We've qualified for deductible IRAs each year because we weren't covered by any plan.) Anyone have a clue whether the plan described will meet the IRS's 'qualified' standard? Or how I might research this?"

Interesting question. National Provident fund systems are becoming increasingly widespread, epecially in countries that haven't had a defined benefit retirement program (which our current Social Security system basically is).
For those of you who aren't familar with provident fund systems: Money is collected on a mandatory basis from both employee and employer (as with SS), and invested for long-term capital appreciation. Investments methods vary country to country, from a Trustee system (in effect a government operated mutual fund) as Hong Kong has created to a limited option menu of typically balanced (stock and bond) funds with a requirement that the share due the employee on retirement be used to buy an annuity (as in Chile).

As to whether the Hong Kong MPF is a "qualified retirement plan," I would suspect that it does. However, I would contact the IRS directly for their guidelines. Seeing as how many countries have adopted a provident system, I expect that there has been a formal ruling on the matter by now.
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Thanks for your thoughts.

Just finished searching the IRS site about 7 different ways, and here's all I could glean from the effort:

A qualified retirement plan is a plan that qualifies as a qualified retirement plan.

And around we go...
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Kse4 asks:

<<The Hong Kong gov't is instituting something called the Mandatory Provident Fund--all employers have to contribute the lesser of 5% of a worker's salary or HKD$1000 (about USD$125) per month to what is essentially a retirement fund. Workers have to do the same. Such a thing is brand new here. We've not been covered by any such thing up to now.

Would the IRS consider this a 'qualified retirement plan'? (As you might guess, this is an IRA eligibility question. We've qualified for deductible IRAs each year because we weren't covered by any plan.) Anyone have a clue whether the plan described will meet the IRS's 'qualified' standard? Or how I might research this?>>



A qualified retirement plan is one that meets the numerous requirements of the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act of 1974 (ERISA). Plans meeting these requirements qualify for four important tax benefits.

First, employers may deduct allowable contributions in the year they were made on behalf of plan participants. Second, plan participants may exclude contributions and all earnings thereon from their taxable income until the year they are withdrawn. Third, earnings on the funds held by the plan's trust are not taxed to that trust. And fourth, many times participants and/or beneficiaries may further delay taxation on a plan's benefits by transferring those amounts into another tax-deferred vehicle such as an Individual Retirement Arrangement (IRA).

A qualified retirement plan falls into one of three general categories: A defined benefit plan, a defined contribution plan, or a hybrid plan. A hybrid plan is one that combines various attributes of the first two categories, which are discussed below.

If your Hong Kong firm has submitted it's plan's documentation to the IRS for a favorable letter of determination and if the IRS has provided that letter, then the plan is qualified. Otherwise, it is not. Your plan administrator can answer that question for you. The plan has either been determined by the IRS in writing to be qualified or it hasn't. The plan would have a copy of that determination.

You're talking about a foreign firm with largely foreign workers. It's unlikely the firm or the workers pay significant income taxes to the USA. Therefore, it's also unlikely the IRS would grant qualified plan status to this plan.

Regards..Pixy
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