Foreign Account Reporting for Retirement Plans

Since the 1970s, the Department of Treasury (Treasury) has required U.S. persons to file a Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1, or FBAR) with respect to their “foreign financial accounts.” Despite the longstanding existence of the FBAR form, the extent of its application to employee benefit plans is not well settled, for two primary reasons. First, foreign investment by plans was simply not widespread in the 1970s. As plan investments broadened to include more foreign and alternative investments, there seems to have been a general understanding on the part of plan fiduciaries, practitioners, and the Internal Revenue Service (IRS) that it was not necessary to file FBAR with respect to plan-related foreign investments. This understanding was likely derived from the fact that FBAR’s purpose—to prevent taxpayers from hiding assets offshore to either evade paying income taxes or launder money—seems to have little relevance in the context of plan investments. Second, enforcement of the FBAR reporting requirement has been limited until fairly recently.

Recently, however, the IRS, began active enforcement of the FBAR filing requirements through a number of high-profile prosecutions and media initiatives. In addition, recent changes to the FBAR filing instructions and informal guidance from the IRS indicate that fiduciaries must file FBAR with respect to, among other things, a plan’s investments in certain types of offshore entities, such as offshore hedge funds. This “new” filing requirement presents a number of practical difficulties to plan fiduciaries and service providers. Fortunately, the IRS granted some relief by extending until June 30, 2010 the deadline to file for 2008 and prior calendar years for many plan-related filings.

The attached article explores the FBAR filing requirement as it relates to retirement plans by first looking at the history of the current FBAR filing rules and then discussing how the filing requirements are relevant to retirement plans and plan fiduciaries (e.g., plan investment and administrative committee members, and financial institutions that act as trustees for plan trusts). The article also analyzes recent filing relief issued by the IRS and discusses the future of the filing requirement.

^{This article is reprinted with the publisher’s permission from the JOURNAL OF RETIREMENT PLANNING, a bi-monthly journal published by CCH, a Wolters Kluwer business.}