The Mexican Administradoras de Fondos para el Retiro (AFORE) & FBAR
Contents
The Mexican Administradoras de Fondos para el Retiro (AFORE) & FBAR
When it comes to reporting the annual FBAR (Foreign Bank and Financial Account Reporting aka FinCEN 114), one of the most complicated aspects of reporting is not necessarily gathering the data as much as it is determining which specific types of foreign accounts are reportable for IRS compliance purposes. One common question is whether or not the Mexican AFORE (Administradoras de Fondos para el Retiro) is reportable. Since it is a foreign pension, the AFORE is reportable (the only pensions which can usually escape reporting are primarily US-based IRAs and 401s – which may have foreign accounts or assets within the funds. Let’s review the Mexican Administradoras de Fondos para el Retiro (AFORE).
Definition of the Mexican AFORE
As provided by the Government of Mexico:
-
-
-
AFORES
-
In 1997 the Mexican pension system was transformed from a pay as you go into a private scheme of individual capitalization (defined benefit -DB– to defined contribution –DC The reform was implemented in order to face demographic challenges and ensure the financial sustainability of pensions.
-
Each worker owns an individual account in which contributions are mandatory for the employer, the government and the employee.
-
-
AFORE Account (Cuenta AFORE)
-
It is the only and personal account of each worker, managed by an AFORE. Such account, during the service life of the worker, accrues the tripartite contributions. The individual account is made up by 3 large subaccounts, namely: Retirement, Severance in old age and Old Age, Housing and Voluntary Saving. The individual account forms a part of the property of each worker and can be inherited.”
-
-
AFORE Pension Funds Manager (Administradora de Fondos para el Retiro)
-
Financial institutions in charge of managing the funds of the workers’ pension saving accounts. All such financial institutions belong to the private sector, except for PENSIONISSSTE which belongs to the pubic sector. Whether pubic or private, all of them are subject to the regulations of the pension saving system.
-
-
AFORE Services (Servicios de las AFORE)
-
Services offered to the workers such as the custody, management, investment of the resources, delivery of statement of account and other additional services such as information delivery through internet, telephone assistance, number of branches, balance consultation by means of an electric card, among others.
-
-
AFORES Merger (Fusión de AFORES)
-
Process under which an AFORE absorbs another one. Exceptionally, those workers affiliated to the merged AFORE are entitled to stay in the merging AFORE or to move to the AFORE of their preference.
-
-
-
FBAR And AFORE
As provided by FinCEN:
-
-
-
Financial Account Financial account includes the following types of accounts:
-
Bank accounts such as savings accounts, checking accounts, and time deposits
-
Securities accounts such as brokerage accounts and securities derivatives or other financial instruments accounts,
-
Commodity futures or options accounts,
-
Insurance policies with a cash value (such as a whole life insurance policy),
-
Mutual funds or similar pooled funds (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions),
-
Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution.
- Example: A Canadian Registered Retirement Savings Plan (RRSP), Canadian Tax-Free Savings Account (TFSA), Mexican individual retirement accounts (Fondos para el Retiro) and Mexican Administradoras de Fondos para el Retiro (AFORE) are foreign financial accounts reportable on the FBAR.
-
-
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.