Illegal employee

[Guest Mike Schwing]

My employer recently discovered that one of their employees was using a fraudulent green card and SS#. The employee was recently deported. The employee had an employer profit sharing balance in the company 401(k) plan.

Can I assume the balance is forfeited and the illegal employee is not entitled to this amount.

[GBurns]

Is there some law that you saw somewhere that causes you to think that immigration status prohibits participation in any plan? If so which one?

[MGB]

There are hundreds of thousands (if not millions) of illegal aliens in qualified plans in this country. They all have a right to their benefits no matter what happens to them.

[mbozek]

No but if the plan provides, a benefit which is payable can be forfeited on account of the inability to find the participant subject to reinstatment of the benefit if a claim is made at a later dete. Reg 1.411(a)-4(b)(6). It is assumed that the participant did not leave a forwarding address.

[Blinky the 3-eyed Fish]

If the former illegal alien is entitled to the money, how do you pay them out and withhold taxes? Could they roll it over into an IRA?

Logistically, it doesn't seem to be feasible.

[mbozek]

B: Given that the participant used some else's identity how will the plan know the participant's true identity if a claim is made to pay the benefits? Even if the deported individual provides evidence satisfactory to the plan admin of his real identity he would have to obtain a tax id # from the IRS before payout could be made. Finally withholding would be at a 30% rate.

[GBurns]

The determination of illegal use of a SS# is not within the province of either the employer or the plan, only eligibility for employment with that employer is. This participant does not have to further identify him/herself, their identity is already well known to both the employer and the plan. The participant can direct rollover to wherever they feel (subject to acceptance etc by the recipient). There is no problem posed by any withholding, it is simply reported using the same SS# under which it was contributed. The participant might even have been properly filing, reporting and paying all due taxes under the SS# which is their business not the employer's or the plan's. Fraudulent tax returns, misreporting of income etc outside of a payroll are also not the province of employers.

[mbozek]

GB: What planet are you from? An employee who misrepresents his identity by presenting a fake green card and SS card has clearly not identified himself as a person known to the employer/plan since he has misrepresented his identity in violation of the immigration laws and the USA Patriot Act. An employer is who does not take steps to correct a SS no and identification is subject to penalites under the SS Law, 1986 Immigration law and sections 6721-23 of the IRC. The plan administrator is subject to fines if he/ she fails to correct false taxpayer information required to be reported. See IRC 6721. The penalty is doubled for intentional disregard of the law. IRC 6721(e). There is a separate penalty for providing an incorrect statement to the payee, which is also doubled for intentional disregard by the payor. IRC 6722. In addition, the income generated by this fake employee will be taxed to another person, who may have to retain a tax advisor at his own expense to straighten the mess out. (do you really believe that the employee was properly paying taxes under some one else's id?) Funds due a non resident alien cannot be transferred outside the US without compliance with the provisions of IRC 1441 which will require presentation of proper identification, the procurement of a tax id no. from the IRS and 30% withholding. A rollover is not possible if there is no tax id no.

[Harwood]

S. Derrin Watson deals well with the issue in his Who's the Employer Q&A column #100

His view (matching mine) is summed up in the preface to Q&A 205: "illegal aliens should be considered employees and participants of a qualified 401(a) plan even though they are not employed legally."

[GBurns]

mbozek,

I am from planet Earth and so is Derrin Watson and the US Supreme Court.

I keep telling you that neither you nor I know everything, but for some reason you keep thinking that you do and that you are the only person allowed an opinion in this country. You also have the habit of unnecessary rudeness and I do wish the Moderator would address this.

An employee is identifiable by his face regardless of his name etc. Even if he uses an alias it is still the same identifiable person. Identification for reporting purposes has nothing to do with identifying the employee, in fact that is how they knew to whom to issue work orders and give the paycheck.

As for creating a mess for the true holder of the SS#: If the employee was paying the taxes due, Why would any mess be created? If the employee was doing it with the agreement and knowledge of the person and the tax returns were being done to accomodate the misuse, Why would there be a mess?

To create scenarios and hysteria without the facts is spurious. To create hysteria and "doomsday" scenarios without the facts is ethically questionable. To throw cites that are irrelevant and somewtimes incorrect is immoral, dishonest and detestable.

[Jon Chambers]

Well put GBurns!

[Blinky the 3-eyed Fish]

I am just glad we verified the planitary origins of those in question. I just moved to Roswell, NM, watched "Invasion of the Body Snatchers" last night, and saw strange objects in the sky not too long ago.

I was going to get my gun, but now I will put it away.

[mbozek]

Sorry if I offended you GB. I think you and Haywood misunderstand my post. I am not in disagreement that there is a benefit payable to the participant under ERISA, illegal alien though he may be. However I see nothing in the applicable laws that permits a plan admin to pay a distribution to somone who has not provided correct identification which verifies that the applicant is the same participant who used stolen idenification to illegally work in this country and accrue benefits. The Plan admin has the responsibility get proof of identity to avoid having to pay again in the event the applicant turns out to be another identity thief. I am assuming that the particpant will not be applying for benefits in person given that he has been deported and will be jailed if he shows up to collect his benefits. Second, and this you seem to ignore, the plan admin is required to get a correct tax id no. from the participant before making payment under the IRC. This means the participant who is a non resident alien will will be required to apply to the IRS for a tax ID no. before any payment can be made. No tax ID, no payment. The plan admin has no liability for not paying benefits to a person who the admin knows is using a false tax id no. You should talk to the IRS about your novel concept that two people can have income taxed to the same ss no. without there being a problem under tax laws. Its called tax fraud. I am interested in any arguments based in law that would require payment of benefits to a person who presents false ID and SS no.

[Guest TAG]

Mbozek...yes in a perfect world. As the unfortunate recipient of a california social security number (as we all know the first three #'s are coded where the card was issued) I found out by a rather odd chance of fate that an illegal alien who was a convicted felon had not only been using my ssn, but the State of California was using my ssn for his prison number!

The gov't was (is) so screwed up that it took me months to correct the situation. In fact, one rather sharp gov't employee told me that it would be easier for me to request to change my ssn than to correct the mess with the illegal. In short, just let him have my number! Total bureaucracy, total mess which I hope to god none of you ever have to deal with.

Additionally, the SS office told me that I was fortunate as the guy's family wasn't drawing off of my social security depleting my benefits. Let me tell you it was a mess. And the whole system is a mess as well. There are literally millions of illegals using various combinations of ssn's that they randomly put together. My guess is that is one reason we now receive annual statements in place of the old system where you had to request one.

If the SSecurity office can pay them, maybe we should as well? Follow the document and the world will be a happy place.

tag

[Jon Chambers]

I guess the open question is how you know whether an ID or SS# is fake or not. I had a client once who employed migrant workers. They would show up year by year with new IDs and SS#s. Client wanted to know whether the same person with a different ID was one participant or two (BTW, this was way pre-Patriot Act, with much less sensitivity to fake IDs). We advised that they should accept the participant's representation regarding ID, unless they knew IDs were fake. Following this logic, we established new accounts and new participant records when participants presented new ID. I guess this begs another question--could the same person take a distribution as a former participant under their old ID, while continuing to accrue benefits as an active participant under their new ID. Luckily, we were never asked this question.

[Guest LVanSteeter]

So, what would you advise to a plan that has multiple employees, in the same location, using the same SSN?

Seems to me that this is a knowing violation and could get them into some serious trouble.

[GBurns]

The employment issue is a separate issue from the Plan issue. Under the employment issue the employer has the obligation to verify and question the documents provided and the information given. If the employer knowingly accepts false or improper documents etc the employer has created its own legal problem.

However, if the emplyee is employed and does become a plan participant, eligibility, vesting and distributions etc are issues that are not covered under Labor laws. In the same manner tax reporting whether payroll or plan is not a state or other labor law issue.

If the employer subsequently finds multiple EEs in the same location with the same SS#, the first issue is HR competence. Next I would guess that the employees would have to be called in to provide corrected I-9, W4 and whatever else is required for employment. If the employees cannot provide the required information, then the employer would be allowed to terminate employment as allowed by applicable laws or report the misreporting to the authorities in the prescribed manner.

If the Plan Admin. is the one noticing the discrepancies, I would advise that they inform the employer. Illegal employment is not the business or within the jurisdiction of the plan or plan administrator to attack or correct.

[mbozek]

GB- why do you insist on classifying an incorrect ssn as an employment issue and not a issue for a plan admin? The penalities under IRC 6721(a)(2) apply to a plan admin who files an incorrect information return and are doubled in the case of an intentional failure. Clearly a plan admin who is aware that several participants are are using the same ssn has a duty to determine the correct ssn in order to pay distributions. Separate penalties also apply if the participant is provided with an incorrect 1099-R. Also since many plans/record keepers identify employees accounts by ssn, the plan admin must determine the correct identity / ssn of each participant to avoid a claim of failure to properly determine the correct benefits of each of the participants under ERISA. I am interested in the citations of authority for your position.

[GBurns]

mbozek,

Why do I insist? ... Because it simply is. Notice (which means that you should readthe posts by others) that no one else disagrees. And I guess that you also did not read the links provided by Harwood nor did you take the hint to read Derrin Watson's Q&A.

A PA does not hire employees and cannot correct employee's W4 or I9 etc all they can do is alert the employer. The US Supreme Court explained most of the issues in the link, If only you would read. As Jon Chambers pointed out "We advised that they should accept the participant's representation regarding ID, unless they knew IDs were fake" which was addressed to the employer not the PA.

Where have you ever seen that a Plan Administrator who files a return with the information duly provided by the participant is held responsible under any part of the IRC or Treas Regs for the validity of that info?

Filing a return with the info provided does not constitute an incorrect return under anything especially 6721. This is no different that if the employee fills out their info form with a typo or spelling their name differently and the PA uses that in filing the return. The fact that SSA or the IRS has a slightly or even very different name does not constitute an error etc in filing.

I do not have to cite anthing, it is plain logic. Ask anyone who fills out returns for large employers, there are always a number of such discrepancies.

I wish that you would not continually guess at things and keep citing irrelevant or erroneous things. Step back and think before engaging "mouth". There are many old sayings that you bring to mind but it would be impolite to mention them.

[Guest DMK]

I just wanted to step in and tell everyone to take a deep breath. This is deteriorating into personal attacks. And GBurns -- I have to say that you often are guilty of those actions of which you accuse Mbozek. (A quote from your post: "I wish that you would not continually guess at things and keep citing irrelevant or erroneous things. Step back and think before engaging 'mouth'.") My personal favorite is when someone asked whether shareholder approval was required for amendments to a 423 plan. You responded that shareholder approval was not required and then asked "What is a 423 plan?" (In fact, shareholder approval is required for adoption of, and certain amendments to, an employee stock purchase plan intended to meet the requirements of Code Section 423.)

Obviously many of the issues in this area have shades of gray and reasonable people can take different approaches. I just think that this board will serve us all better if we can keep it focused and friendly.

[Harwood]

If, at the time of distribution from a qualified plan, the recipient is a Non-Resident Alien, there is no SSN or Taxpayer Identification number needed. Such distributions are reported on Form 1042-S, not 1099-R. The use of an SSN/TIN is not required on Form 1042-S.

[GBurns]

That was exactly my point. Since I was not sure of what a 423 Plan was, rather than shoot off at the mouth, I simply asked. However, I did respond to what I was sure of, the accuracy of which you yourself have now partially confirmed (partially because as you point out "only certain amendments" need shareholder approval but ALL need Board approval). This was my entire post:

GBurns Posted: May 7 2003, 07:10 PM

Registered User

User Group: Registered

Posts: 866

User No.: 2663

Joined: 13-September 99

A change to a Plan would require Board approval but certainly not shareholder approval.

What is a 423 Plan?

***************************

Since that was my reply, the accuracy of which you now confirm, I have to wonder where you find any inaccuracies or irrelevancies that you are accusing me of in your statement "I have to say that you often are guilty of those actions of which you accuse Mbozek".

What do you find wrong with that response that causes it to be one of your favorites?

As Harwood now makes clear, the reporting would not show the SS# ans therefore the PA couls not be inaccurately reporting anyhow.