Many US-based global employers can lose sight of compliance matters connected with employee benefit plans managed by their non-US operations as often non-US plans are statutory plans, maintained by a governmental agency, where the employer’s only obligation is to make the required contributions.
As the first quarter of 2018 comes to a close, now is a good time to review your company’s global pension compliance.
Delinquency Red Flags
The local non-US affiliate may be delinquent in completing necessary filings, making contributions, remitting tax payments and/or in governmental reporting obligations, including the obligation to properly report income. Statutory plans often require both employee and employer contributions.
For example, certain non-US plans have auto-enrollment features, much like US Code Section 401(k) plans, and compliance with such features should be routinely checked. Further, employers who maintain both US and Puerto Rico pension plans are often surprised to find their Puerto Rico plans are out of compliance as there are significant differences between local jurisdictional laws as applied to pension plans.
Enforcement Risks on the Rise
Local compliance is important not just for the local non-US affiliate but also for the US-based global employer as noncompliance can create a reputational risk, especially if the board of directors is considered to have fiduciary obligations regarding the employee benefit plans of its non-US affiliates.
Further, regulatory agencies in many non-US jurisdictions are increasingly investigating local compliance and imposing fines and other sanctions for non-compliance. For example, the UK government may significantly enhance the powers of the UK Pensions Regulator, including the authority to pre-approve certain corporate transactions where a UK-defined benefit pension plan may be involved, resulting in an increased risk of intervention by the UK Pensions Regulator in corporate transactions and restructurings and the potential for punitive fines.
Keeping Your Finger on the Pulse
It can be a significant challenge to monitor legislative changes and make the appropriate and corresponding adjustments in documentation, practices and procedures to remain compliant. For the latest developments in global pensions, see Baker McKenzie’s Pensions Update here.