Betriebliche Altersvorsorge as a US citizen

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The insurance respresentative selected by my employer has been in this week and "new" employees are being offered the chance to contribute to the betriebliche Altersvorsorge (an Unterstützungskasse).

 

I have a vague understanding of the tax benefits under the German system*, and the representative is under the impression that my citizenship isn't a problem. I have asked her to check on that and if everything is still alright, I will get the full sales pitch this coming week.

 

My question is: Is there something I am overlooking on the US side that would make participating in this (I think Ünterstützungskasse translates roughly as "workers benevolent fund") a problem?

 

Is anyone else participating in one through work?

 

*contributions are before tax income, distributions are treated in Germany as earned income, 10 per cent employer match

 

thanks!

ann

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If I were you, I would ask a US tax accountant if a ruling from the IRS on this product is required, specifically that you can deduct contributions from pretax income for US income tax purposes (which of course assumes that your pretax salary exceeds the Income Tax Exclusion amount, otherwise it's irrelevant). I'd imagine that its similarity to US 401k plans would make it possible for you to get that approval if it is not already a settled issue, but a US tax accountant should be able to tell you if that is the case.

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(Mods: Apologies if I should be starting a new thread here, I realise it's a couple of years old.)

 

I'd be interested to know if the OP found any resolution to this; I'm currently deciding whether to move to a role in my employer's German office, which would involve the same kind of company pension benefit (betriebliche Altersvorsorge / Unterstützungskasse).

 

Regarding a US tax accountant, would this be something that could likely be clarified in a one-off phone consultation just based upon the type of pension? - Or would it require more complex discovery regarding the specifics of the fund's individual investments?

 

I need to somehow understand what the IRS reporting obligations for this type of pension are, prior to deciding on the move. I could choose not to make my own contributions, but I would not be able to opt-out of employer contributions.

 

My concern is that worst case, I could be stuck having to file complex informational paperwork for this pension fund each year (e.g. foreign trust or PFIC reporting, if either of those would apply).

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There has been a lot of positive movement for bAV with regards to international taxation, especially concerning the US thru FATCA. Check this clause here:

 

 

In Artikel 4 („Anwendung des FATCA auf deutsche Finanzinstitute“) heißt es im dritten Absatz („Besondere Behandlung von Altersvorsorgeplänen“): „Die USA betrachten die in Anlage II beschriebenen und ausgewiesenen deutschen Altersvorsorgepläne für die Zwecke des § 1471 des Steuergesetzbuchs der USA entweder als FATCA-konformes ausländisches Finanzinstitut oder als ausgenommenen wirtschaftlich Berechtigten. Zu diesem Zweck umfasst ein deutscher Altersvorsorgeplan einen in der Bundesrepublik errichteten oder dort ansässigen und der deutschen Aufsicht unterstehenden Rechtsträger oder eine vorgegebene Vertrags- oder Rechtskonstruktion, die nach dem Recht der Bundesrepublik Pensions- und Rentenleistungen gewähren oder die Einkünfte für solche Leistungen erzielen soll und in Bezug auf Beiträge, Ausschüttungen, Meldepflichten, Förderung und Besteuerung der Aufsicht untersteht.“ In der erwähnten Anlage II werden „Pensionsfonds“ als „ausgenommene wirtschaftlich Berechtigte“ und „Altersvorsorgepläne nach § 1 des Betriebsrentengesetzes„ als „nicht US-amerikanische meldepflichtige Konten im Sinne des Abkommens“ ausdrücklich genannt.

So, according to all my information, any participation/contribution to a "betriebliche Altersvorsorge" in Germany has not to be reported to the US IRS.

Hope this helps,

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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I can concur with the eminent Starshollow. I have had one of these for years and both a German and US tax advisor said the same thing. The trick here is that with these types of pension plans, you have no control over the investment and therefore it does not require reporting. Theoretically, this should also apply if you invest in one of these immobilien companies like DIG. I'm not advocating this as an investment, perhaps Starshollow can comment.

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@Ann

 

Your US citizenship is no bar to your participation in BaV plan.

 

Indeed, effective 1 January 2007 with the introduction of the new Article 18A to the USA-German tax treaty your participation in a German BaV plan is not only recognized by the United States it is blessed with tax benefits:

 

Read what comfortable words the DBA-USA hath to say to all US subjects who do contribute to a BaV: (my comments in [brackets]

 

Article 18A

Pension Plans

1. Where an individual who is a resident of a Contracting State is a member or beneficiary of, or participant in, a pension plan established in the other Contracting State, income earned by the pension plan may be taxed as income of that individual only when, and, to the extent that, it is paid to, or for the benefit of, that individual from the pension plan (and not transferred to another pension plan in that other Contracting State).

 

[this paragraph embodies the proposition that deferred income invested in a qualified pension plan in either Germany (e.g. BaV) or the USA (e.g. IRA, 401(k)] will not be taxed on value accruals within that plan - and interplan transfers (e.g. 401(k) to IRA) until paid to the individual beneficiary.]

 

2. Where an individual who is a beneficiary of, or participant in, a pension plan established in a Contracting State exercises an employment or self-employment in the other Contracting State:

a) contributions paid by or on behalf of that individual to the pension plan during the period or attributable to the period that he exercises an employment or self-employment in the other State shall be deductible (or excludable) in computing his taxable income in that other State; and

b ) any benefits accrued under the pension plan, or contributions made to the pension plan by or on behalf of the individual’s employer, during that period shall not be treated as part of the employee’s taxable income; any such contributions shall be allowed as a deduction in computing the business profits of his employer in that other State.

The relief available under this paragraph shall not exceed the relief that would be allowed by the other State to residents of that State for contributions to, or benefits accrued under, a pension plan or plans established in that State. The competent authorities of the Contracting States shall determine the relief available under this paragraph pursuant to the preceding sentence.

 

[This is an extraordinary clause that is too little appreciated among the US expatriate community in Germany. The plain language states that if, for example, you are a US citizen with an IRA, SEP, 401(k) etc. and go to work in Germany, the contributions made to your US pension plan (be it a 401(k) or IRA) in your absence will be deductible for purposes of computing your GERMAN income taxes on that income; limited only by the extent to which a German contributing to a German plan could so benefit. But . . . due to the Savings Clause this will not work the other way, i.e. for US Citizens who establish a BaV in Germany and then go to work for their German employer in the USA.]

 

3. The provisions of paragraph 2 shall not apply unless:

a) contributions by or on behalf of the individual, or by or on behalf of the individual’s employer were made before the individual began to exercise an employment or self-employment in the other State; and

b ) the pension plan is accepted by the competent authority of that State as generally corresponding to a pension plan recognized as such for tax purposes by that State.

[At first glance this language appears to logically contradict paragraph 2 to which it refers because it requires contributions to be made before the period to which paragraph 2 accords its benefits. However, the proper way to read paragraph 3 is that it establishes a condition that the plan in the "home" country be established (and recognized by the "host" country) and have had contributions made to it BEFORE the individual's contributions made in absentia will qualify for "host" country tax deductibility during the sojourn away from the "home" country of the plan. So, if you are planning a move to Germany, set up that IRA before you go so that you can - in theory, anyway - continue to make contributions to it from your German source income that will German income tax deductible.

 

I don't know anyone who has tried this with their local Finanzamt but it would certainly be worth a try.]

 

4. The term “pension plan” means an arrangement established in a Contracting State which is operated principally to administer or provide pension or retirement benefits or to earn income for the benefit of one or more such arrangements.

 

[The protocol to the 2006 changes introducing Article 18A reads as follows:

 

16. WITH REFERENCE TO PARAGRAPH 4 OF ARTICLE 18A (PENSION PLANS)

a) For purposes of paragraph 4 of Article 18A, the term "pension plan" shall include the following and any identical or substantially similar plans established pursuant to legislation enacted after the date of signature of this Protocol:

aa) In the case of the United States, qualified plans under section 401(a) of the Internal Revenue Code, individual retirement plans (including individual retirement plans that are part of a simplified employee pension plan that satisfies section 408(k), individual retirement accounts, individual retirement annuities, and section 408(p) accounts, and Roth IRAs under Section 408A), section 403(a) qualified annuity plans, section 403( B ) plans, and section 457( B ) governmental plans.

bb) In the case of the Federal Republic of Germany, arrangements under section 1 of the German law on employment-related pensions (Betriebsrentengesetz).

b ) For purposes of subparagraph B ) of paragraph 3 and subparagraph d) of paragraph 5 of Article 18A, it is understood that:aa) The Federal Republic of Germany recognizes qualified plans specifically listed in clause aa) of subparagraph a), other than Roth IRAs, as arrangements that correspond to pension plans referred to under section 1 of the German law on employment-related pensions (Betriebsrentengesetz). The Federal Republic of Germany shall provide the corresponding relief under section 3 No. 63 of the Income Tax Act; and bb) The United States recognizes arrangements under section 1 of the German law on employment-related pensions (Betriebsrentengesetz) as arrangements that correspond to pension plans referred to in clause aa) of subparagraph a) above.

[so there it is in black and white with specific references to the relevant provisions of both the US and German tax codes. ]

 

[This next paragraph applies specifically to Ann MA and others:]

 

5.

a) Where a citizen of the United States who is a resident of the Federal Republic of Germany exercises an employment in the Federal Republic of Germany the income from which is taxable in the Federal Republic of Germany and is borne by an employer who is a resident of the Federal Republic of Germany or by a permanent establishment situated in the Federal Republic of Germany, and the individual is a beneficiary of, or participant in, a pension plan established in the Federal Republic of Germany, aa) contributions paid by or on behalf of that individual to the pension plan during the period or attributable to the period that he exercises the employment in the Federal Republic of Germany, and that are attributable to the employment, shall be deductible (or excludable) in computing his taxable income in the United States; and bb ) any benefits accrued under the pension plan, or contributions made to the pension plan by or on behalf of the individual’s employer, during that period or attributable to that period, and that are attributable to the employment, shall not be treated as part of the employee’s taxable income in computing his taxable income in the United States. This paragraph shall apply only to the extent that the contributions or benefits qualify for tax relief in the Federal Republic of Germany.

 

[This is the corollary to paragraphs 1 and 2 and - much more importantly - grants that most rare of all things: a specific treaty benefit that a US citizen resident in Germany is entitled to claim on their US tax returns without fear of losing it to the evil Savings Clause (Treaty Article 4a). Article 5 a) of the treaty specifically rescues the benefits conferred on US subjects by Article 18A paras. 1 & 5.]

 

b ) The relief available under this paragraph shall not exceed the relief that would be allowed by the United States to its residents for contributions to, or benefits accrued under, a generally corresponding pension plan established in the United States.

 

[This means that the US tax deductibility of your BaV contributions on your US tax return is limited by whatever rules exist in the US for the deductibility of such contributions.]

 

c) For purposes of determining an individual’s eligibility to participate in and receive tax benefits with respect to a pension plan established in the United States, contributions made to, or benefits accrued under, a pension plan established in the Federal Republic of Germany shall be treated as contributions or benefits under a generally corresponding pension plan established in the United States to the extent relief is available to the individual under this paragraph.

[This is a "totalization" provision similar in nature to what can be see in the Social Security totalization treaties. Where US eligibility rules provide for qualifying employment periods (e.g. in a 401(k) plan), your German employment history can be added to qualify you for eligibility.]

 

d) This paragraph shall not apply unless the competent authority of the United States has agreed that the pension plan generally corresponds to a pension plan established in the United States.”

[Yada, yada, yada. This is apodictic and unlikely to be a barrier.]

 

So now you know.

 

Spread the word.

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@Starhollow

 

Your comment with respect to FATCA is correct but a word of caution:

 

FATCA imposes US subject identification and IRS reporting requirements on all but exempt foreign financial institutions (e.g. a BaV plan). As you correctly note, the InterGovernmental Agreement (IGA) between the IRS and Germany specifically exempts a German BaV from this obligation.

 

However, FATCA (Chapter 4, Title 26 USC)and US money laundering (Title 31 USC) impose self-reporting requirements on US subjects whether the FFI with which they do business has a FATCA reporting obligation or not.

 

The primary purpose of the self-reporting requirements whether they are under Title 26 (Form 8938, Form 3520, Form 926, Form 5471, Form 8621, Form 8865, etc. ad nauseum) or Title 31 (the "FBAR" - pronouced "FuBAR" by the cogniscenti - formerly TD F 90-22.1 and now FINCEN Form 114) is to induce US subjects into making errors or omissions on their US tax returns or FINCEN filings for which they can be penalized.

 

The primary purpose of FATCA is to produce third-party evidence of US citizen self-reporting failures in a handy electronic format so the job of extorting penalties from US subjects can be conveniently automated.

 

However, while an FFI's FATCA exemption will likely indicate that an "account" held with it by a US citizen is not reportable by that citizen - otherwise under the logic of FATCA it would not be exempt - US subjects would be well advised to report anything and everything that they own or are acquainted that has a value, a number and a foreign address. (Remember the "Alien and Sedition Act" from history class?)

 

The US Congress in on record that it thinks that extortion is a mighty fine way of raising money - especially when the wretches they victimize don't live in the US.

 

Be warned.

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Thanks Starshollow, rhody, and straightpoop - A lot of helpful info here.

 

So if I understand correctly, with regard to my employer's contributions to the bAV (and my own, were I to choose to contribute, up to the allowable limit), it sounds like I'd just be able to exclude those from my taxable income, because a bAV can be considered a qualified pension plan within the terms of the treaty.

 

I would mention the pension on the FBAR.

 

The biggest worry I have after reading the above would seem to be: Might forms 3520/3520-A (foreign trust) and/or 8621 (PFIC) paperwork potentially apply to a bAV after all? Or would that more of an 'it depends' type of question?

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As background, I've seen some articles (such as at http://www.mondaq.com/unitedstates/x/228626/Income+Tax/Participation+in+a+Foreign+Pension+Plan ) stating things like:

 

 

It is possible that a foreign plan is considered a trust arrangement and, consequently, treated as a foreign grantor trust requiring U.S. participants to report their interest in the trust on a Form 3520. To enable this reporting, the pension trustee must issue a Form 3520-A to the U.S. participant by March 15 following the tax year-end proving specific details of the participant's interest.

If a bAV is by definition not this kind of arrangement, then I may have nothing to worry about, but if there is an 'it depends' factor then I'm guessing I'll need to contact the pension company for more information about the structure.

 

Another viewpoint (http://www.expattaxandlaw.com/foreignpensionform3520.html) talks about a pension being a grantor trust in the context of employee contributions (but doesn't mention if a pension to which only the employer contributes is viewed the same way).

 

The update attached to the bottom of the page suggests, while assuming "a recent and fairly liberal treaty (when it comes to pensions) is available":

 

 

One may take the view that the Treaty overrides the IRC’s grantor trust rules, and the Forms 3520 and 3520-A reporting requirements as they are inconsistent with the treaty’s treatment of pensions. If this approach is taken, it should be disclosed on Form 8833 or 8082.

(Sorry if I'm overthinking this.. It seems like a can of worms, to say the least.)

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@Nachdenk

 

With respect to a German BaV you may safely dismiss the Form 3520 problem out of hand: Trusts do not exist under German law.

 

Nor does the BaV have anything in common with a PFIC as described in IRC §§1291 et seq. so forget Form 8621.

 

The only express obligation to report under Title 31 (FBAR) that might be analogous to a BaV account is a foreign annuity or cash value life insurance policy.

 

See Title 31 CFR §1010.350( c ) for a comprehensive list of the types of reportable accounts.

 

The list makes no specific mention of foreign retirement accounts that are foreign government owned, operated or sponsored, e.g. BaV or Gesetzliche Rentenversicherung, various Versorgungswerke, etc. But it is not at all clear that the list was meant to be exclusive. Probably. But you never know with the bozos that wrote this idiotic legislation.

 

If you want to report it anyway - just for fun and further clog the FINCEN's database with useless information - go ahead. No one will notice or care.

 

Hell, while you're at it, toss in your lotto ticket number and the dry cleaning receipt as well.

 

Assuming you have sufficient accumulated wealth to meet the threshold requirements introduced by FATCA (codified in Title 26 Chapter 4)for reporting "specified foreign financial assets" on Form 8938, the next question is whether the accumulated deferred income and the accruing equitable claim to a pension upon retirement is such a "specified foreign financial asset".

 

Under the rubric "specified foreign financial assets" the IRS instructions to Form 8938 state:

 

Foreign social security.

An interest in a social security, social insurance,

or other similar program of a foreign

government is not a specified foreign

financial asset.

 

Since the protocol to Article 18A of the DBA-USA arguably recognizes the BaV as one such "similar program" you would be likely safe if you failed to include it on Form 8938.

 

But . . . as a recent court decision made painfully clear, IRS informational brochures and form instructions are not legal authority for anything and you rely upon them at your peril.

 

What to do?

 

Report it anyway. No one will notice or care.

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Hi,

 

The sales rep never got back to me and our financial situation changed. Time has been in extremely short supply, so I never pursued it other than calling Allianz directly to confirm that I would, in fact, be able to participate if I wanted to.

 

I will have to read and re-read the information here a few times before I get the gist of it.

 

As nearly all German mutual funds are PFICs, I am a little leary of anything with any kind of fund attached to it. I don't hit the FACTA threshhold and I file the FBAR faithfully.

 

Would the same thing apply (not subject to PFIC reporting and even worse PFIC tax) to a riester rente (fondsgebunden)?

 

I also stumbled across something about an excise tax this year on all foreign insurance products (including health insurance), but I haven't had time to wade through whether there is a treaty and whether it applies either. Needless to say that none of this is in Publication 54, because US citizens abroad obviously have no need to understand this §$%&.

 

thanks and sorry I haven't tracked down the info myself

ann

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@straightpoop - Many Thanks.

I'm relieved to put the foreign trust and PFIC topics out of my head, and off my things-to-drive-myself-slowly-crazy-about list for my potential move. My impression's been that situations like this can be more complicated than they might at first seem, so I'm glad to hear that the bAV isn't one of those cases.

Thanks again to everyone who has provided feedback.

 

(@Ann_MA - Sorry to interrupt your subsequent question about Riester-Rente.)

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Hi folks, I have an additional issue on the subject of the bAV. What about the limitations on American citizens investing in stock-market traded funds? Unfortunately most (all) of the brokers involved have brushed this question off without a second thought, but I think it's quite crucial.

 

I am referring to clauses like this one:

 

"Das Produkt darf nur in solchen Rechtsordnungen zum Kauf angeboten oder verkauft werden, in denen ein solches Angebot oder ein solcher Verkauf zulässig ist. So darf das Produkt weder innerhalb der USA noch an oder für Rechnung von US-Staatsbürgern oder in den USA ansässigen US-Personen zum Kauf angeboten oder an diese verkauft werden."

 

If it's explicitly stated, the case is clear, but I can't get a straight answer from most brokers on the subject. I don't want to put the effort into choosing from several possibilities if several (all?) of them can be excluded from the outset. Does anyone have experience/knowledge of whether this applies to US citizens with respect to the bAV. Some brokers are claiming that the company is the contracting party, so it's not relevant, but as far as I can see I would still be the beneficiary, so it is very much relevant.

 

Any input greatly appreciated!

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most bAV (company pension plans) are not based on mutual funds/investment funds but are set up as a classical whole-life-insurance plan. For all those US-nationals are accepted without exception from all that I know.

If you like to set up, though, a bAV plan in the form of a "Direktversicherung", for instance, based on mutual funds (Fondsbasierte Rentenversicherung) then most insurance companies will sumarily reject applications from US nationals who are residents in Germany.

Having said that: there are at least three insurance companies I know of that offer fund-based bAV-plans and fully accept US-nationals. And on the tax side/FATCA, Straightpoop has already duly explained everything above (which also means that most German insurance companies badly misunderstand the legal situation, but that is not exactly news to an independent broker, actually).

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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Would the same thing apply (not subject to PFIC reporting and even worse PFIC tax) to a riester rente (fondsgebunden)?

 

Erm, that just made me wake up - I'd also like to ask if the Riester Rente contributions/value need to be reported in any way?

 

I'm presently wading through stuff to collect for taxes and didn't even think of asking a consultant about that! *eek*

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Thanks! There's so much helpful information in this thread!

 

So now I'm unsure about a "fondsbasierte bAV" with respect PFIC reporting ... everything stated above says that bAV is not subject to PFIC but somehow I'm wondering if the "fondsbasierte" form might well be?

 

On a side but related note, I am supposed to be receiving half of a Riester Rente as the result of a divorce from a German national. The law dictates "interne Teilung" but the provider specifically prohibits contracts with US-nationals (I've seen the contract and couldn't sign it). Anyone have an idea what they will do with me?

 

I've already contacted a number of people at the various providers but they all seem woefully uninformed to say the least and I haven't received any helpful responses yet.

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:D Sure! But just a little point.. that was 7 years ago!!!

I am a professional independent insurance broker and authorised advertiser. Contact me.
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On 18.5.2021, 20:11:09, BernieBernie said:

you guys rock!
 

What about Rürup and Riester wrapped around ETFs?

 

😅

 

RÜRUP is well possible for US-nationals living in Germany because during duration you can't remove capital out of it...which is one of the requirements accoding to the German-US-agreement.  RIESTER is a different matter entirely, because there you can - albeit with penalties - retrieve your capital during duration/before pension-age. The jury is still out if this is sufficient and US-De agreements to make it free of tax-reporting requirements in the US.
Therefore the priority ranking of recommendation for US-Expats in Germany is
- bAV/company pension (provided you are an employee

- RÜRUP pension for all others.

 

Cheerio

 

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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