Handling Undocumented Workers Who Participate in ERISA Plans

July 18, 2022
Hall Benefits Law, LLC

Undocumented workers are increasingly participating in and accruing benefits in ERISA plans, which presents challenges for employers. ERISA does not specifically exclude these employees from participation in ERISA-governed plans. Although the federal government has explicitly stated that other federal laws protect undocumented workers, it also has not stated that ERISA protects undocumented workers. Likewise, court decisions have been inconsistent in their treatment of undocumented workers under ERISA. The lack of clear guidance combined with inconsistent court decisions can lead to confusion and differing approaches from employers dealing with undocumented workers. 

Undocumented workers typically have no valid Social Security number or are working under a false Social Security number. As a result, tax confusion and other difficulties can arise when these workers participate in an ERISA-governed plan. For instance, the Affordable Care Act (ACA) requires large employers to provide the IRS with the Social Security numbers of employees participating in their group health plans. 

Likewise, when a 401(k)-plan participant terminates employment, the plan typically needs to report any distribution of accrued benefits to the employee to the IRS for tax purposes. Undocumented workers can avoid this problem by obtaining and furnishing their employers with a valid Individual Taxpayer Identification Number (ITIN). These workers can use an ITIN for 1099 reporting and filing personal income tax returns without regard to their immigration status. Many workers decline to get an ITIN, even though the IRS and Social Security Administration (SSA) does not typically share information with federal immigration authorities.

Employers respond to the participation of undocumented workers in ERISA plans in different ways. Some employers terminate workers who cannot produce a valid Social Security number, but termination may expose the employer to a discrimination action by the worker under ERISA Section 510. 

Other employers continue to employ the worker, but they discourage plan enrollment by requiring a valid Social Security number. Some employers exclude undocumented workers from plan coverage by including a provision that denies all coverage for workers who have no legal right to work in the U.S. or are working with false documentation.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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