incorrect social secutity number

[k man]

a client just called and said they have an employee (terminee) fully vested that was illegal to work. they used an incorrect social security number. now they want to know what to do with his retirment plan account. some his employer money. they actually dont want to give the money to him. of course they have to give the deferrals. do you let him roll it over or do you withhold and send to the irs. how do you report this if you dont have the correct ss number?

[Brian Gallagher]

Sounds like a mistake of fact. Send it all back to the company. He gets his 401(k) money reported on a W2.

Just a thought.

[WDIK]

Hashed and rehashed.

You can find additional threads as well.

[k man]

i just read through many of the threads on this topic and the one thing i cant seem to resolve is how to report the distribution in light of the invalid SSN. i dont see any viable way of forfeiting the participants money.

[WDIK]

Ay, there's the rub. - Hamlet

[mbozek]

How is the plan going identify the participant properly to pay the distribution if the person has used false identity to accumulate the benefits? What makes you think that the imposter will make a claim for benefits? People terminated for identity theft usually disappear and leave no forwarding address which allows the plan to forfeit the benefits.

[k man]

i dont think it was an identity theft situation. the participant has been around for 7 or 8 years. i am not sure how they would identify them. i believe they know who the person is that worked for them. i think there must be a way to make them get some form of tax id number.

[Guest nbs]

"they have an employee (terminee) fully vested that was illegal to work"

If he was "illegal," I'm guessing that he wasn't eligible for the plan. If that's correct and he wasn't eligible to participate, I don't think he'd be entitled to a distribution...so nothing would have to be reported. I think the deferrals and the ER money would have to be forfeited and the employer would have to make the "illegal" whole outside of the plan.

[k man]

actually he was not ineligible. he was illegal in that he was an undocument alien. however, he was not excluded as a non resident alien and he has us source income.

[Guest nbs]

How do they know they have been using the wrong SS number? Is it a situation where they are unable to contact him now to get the right # (unless you already have it)? I was wondering why you couldn't just use his correct SS# on the 1099-R to report the distribution?

(I see from your original post that they don't have the right #.) Might be a stupid question... but, shouldn't they have made copies of SS Card or something when he was hired?

[Guest Nautical]

I don't think the company can keep anything he contributed out of his own pocket to the plan. I seriously doubt he falls under the definition of a participant in the plan. What ever the plan text says, go with it!!! Usually a participant is defined as a US citizen or non resident alien or whatever... if he is illegal than he probably would not be vested in the employer contributions.

[SoCalActuary]

If the person is an illegal immigrant performing services, you have to get the opinion of immigration/labor law people. They have their own rules that pension people might not understand.

By the way, the immigration law people have two strong-willed sides with high-powered lawyers, so be careful what you do to eliminate benefits.

[Guest Grabitquick]

actually he was not ineligible. he was illegal in that he was an undocument alien. however, he was not excluded as a non resident alien and he has us source income.

Illegal status and eligiblity to participate in the plan are separate issues. If the former employee worked in the U.S. for the employer, received U.S. source income and otherwise met the plan's eligibility conditions, then I can't think of any reason why he or she would be ineligible for employer contributions, and certainly should get back anything that the employee contributed.

How did they discover that the SSN was incorrect? Was it by notice from the Social Security Administration or the IRS that the number did not match their records? In any event, if it's certain that the SSN provided before is incorrect, then why not just provide an IRS Form W-9 to the former employee and have him or her submit it to the employer in order to report the distribution? If the new SSN provided is also bogus, then I think it becomes the IRS's problem, not the employer's.

Also, the other poster who suggested talking to the labor and employement folks is correct, I think. This situatino may implicate other issues.

[GBurns]

I thought that employers employed persons not SS#s. I also though that plan participants were eligible employees and not eligible SS#s.

SS#s are identifiers used for reporting. The main reason for using SS#s was because sorting, matching and merging by alphabet (name) was very slow on early mainframe computers and keying in names was slower than keying in numbers. Keying in was data entry via punch cards and sorting was by multi function card readers using multiple passes. Increased accuracy caused by the use of SS#s was never a consideration partially because a SS# is supposed to be unique to each person etc.

In any case, services as an employee was provided by a known person. Participation was granted to a known person. Contributions (salary deductions) were accepted from a known person. Why all of a sudden this person is not known?

From the post I suspect that the real reason behind this is really just to find a way to confiscate (reclaim) the employer's contributions and if possible also the employee's deferrals. The original post stated "they actually don't want to give the money to him".

They could identify him before, why not now? The reporting to the IRS has nothing to do with paying the money to him. The check bears the name of the participant not his alleged SS#. Reporting to the IRS would be done to the same SS# that previous reporting was done, there is no other SS# involved.

[mbozek]

To avoid problems with illegal aliens participating in a qualified plan participation can be limited to US citizens and resindent aliens. Only salary reduction contributions would be returned to illegal employee upon proper proof of identity to the plan admin.

[k man]

for the record, i told them that they should not try to keep the money because i thought it rightly belonged to the participant. however, i was interested in getting other opinions.

[GBurns]

mbozek

What is the rationale for "unvesting" this former employee/plan participant?

His entitlement to employer contributions was based on plan participation and legth of participation. These in turn are based on the providing of services to the employer, participating in the employer's plan (and probably benefitting the HCE and employer), and was vested in return for long loyal service. None of these items have anything to do with the SS#.

Now, although the employee is known and can be identified, which your last post shows that you concede, you want to "unvest" this employee. Also this person was never an illegal employee, they were an illegal alien (and even that might not be true).

[mbozek]

While the amendment would apply prospectively, the plan sponsor could request IRS approval of a retroactive amendment on the grounds of mutual mistake, i.e., the employer never intended to employ illegal aliens since it is against the law and the employee was mistaken in believing that he was eligible for benefits because he not was permitted to work in the US with false identification. The sponsor has nothing to lose and if approved would have grounds to deny benefits.

[Guest Grabitquick]

Even if the IRS issued a favorable determination letter on such an amendment, I doubt that it would insulate you from a private lawsuit under ERISA, which I suspect that the former employee would win under the facts presented here so far. At least, I would not want to be the one defending the employer on this one.

[mbozek]

Who would you rather be: The advisor who recommended that the employer adopt a plan that pays benefits funded by the employer to illegal aliens or the advisor who recommends that the employer amend the plan to deny payment of benefits to illegal aliens, if, in the unlikely event they make a claim for benefits under the plan and choose to sue in federal ct after they exhaust their appeals (assuming that they have not been deported in the meantime).

[GBurns]

That depends on what is meant by "advisor". If "advisor" means legal advisor, that is much different than a plan "advisor".

I doubt that any plan advisor would be, could be or might ever be in a position in which he/she would tell any employer to "adopt a plan that pays benefits funded by the employer to illegal aliens " and it would be a foolish advisor "who recommends that the employer amend the plan to deny payment of benefits to illegal aliens".

While plan advisors might advise on eligibility and classifications etc, the subject of who is or is not employable, whether because of immigration status or otherwise, is not within the scope of advising about plans.

Employment decisions are not related or relevant to plan decisions.

As for asking for "IRS approval of a retroactive amendment" because " the employer never intended to employ illegal aliens since it is against the law". What does immigration law have to do with the IRS? What does illegal immigration status have to do with the contributions made and the vesting of benefits?

[JDuns]

(1) All employees (legal or not) have a right to receive all compensation earned while employed (including retirement benefits, vacation pay ...).

(2) The social security administration and IRS have indicated that the proper way to report the income is to issue the 1099R (and any remaining W2s) using 000-00-0000 and amending the filing if (when) you receive a correct W-4.

(3) Filing using a SS# you know is incorrect exposes the reporting entity to potential liability for knowingly filing a false report (although the penalties may be mitigated by reliance on the W-4 or W-9).

(4) An employer may not require a potential employee to show their SS card at their date of hire. They may show two other pieces of identification and complete their W-4 without showing their card.

(5) The plan may be able to be amended (prospectively only) to exclude undocumented aliens (excluding resident aliens also excludes people with green cards and undocumented aliens working more than 180 days during the year will be resident aliens with US source income).

Hope this helps.

[GBurns]

JDuns,

Thanks for the post, but I have a question re (3).

This employer did not previously know that the SS# was not the employee's.

All previous reporting was done under that SS#.

Since the employer did not know that the SS# did not belong to that employee, according to your post, the employer would face no exposure to any liability. However, now that the employer knows, any future use would cause exposure.

Therein, lies the problem, How do you report so as to maintain the connection between previous reporting and this "close out" ?

Can you give a cite for the correction outlined in (2)? Amend which filing?

[mbozek]

I dont think any employer would intentionally adopt a qualified plan that extends benefits to independent contractors, leased employees and illegal aliens who perform services as common law employees if they knew they could adopt plans that exclude these people from the eligible group of employees who participate in a plan. The problem is that employers are not made aware of this option at the time the plan is adoped by the parties who set up the plan. It has nothing to do with an advisor knowing immigration law but making the client aware that ERISA permits exclusion of illegal aliens, independent contractors and leased employees from eligibility to participate in the plan. At the minimum the client should be made aware of the risks in adopting a plan that does not exclude such persons from eligibility.

It would be inconsistent for the IRS to allow an employer to adopt a amendment that denies retoactive benefit accruals for service prior to the date of reclassificaction as an employee but not allow a retroactive amendment to exclude illegal aliens from participation in the eligible group since they both have a retroactive effect on benefit accrual. There is nothing to lose in adopting an amendment eliminating benefits for ilegal aliens because the worst case scenario in adopting a retroactive amendment is that it would apply prospectively. In any event an employer can require an independent contractor or leased employee to sign an acknowledgement that they are not eligible for retirement benefits to start the ERISA s/l clock ticking for filing a claim for benefits.

[JDuns]

SSA Pub No. 16-004 (ICN 361752) published Nov. 2002 entitled Employer's Guide to filing Timely and Accurate W2 wage reports provides

However, if you discover someone was hired in error and/or worked in error with an ITIN (nine digit individual taxpayer ID number that starts with 9 - issued to foreign nationals who are not legally employable in the US), you must still report the wages.  You may use the ITIN to report them or 000-00-0000.

You are not required to go back and amend any prior filings. However, any new filings should be made using the person's name and 000-00-0000. If they subsequently provide you with a valid number, the return filed using the 000-00-0000 ID would be amended with the new number.

While it is true that this breaks the primary link between the old and (presumably) final reports for an individual, it could still be linked by the alpha name. A large employer may well have more than one report filed using the plug number for any one year.

[WDIK]

JDuns,

A couple of points regarding your post:

1) SSA Pub. No. 16-004 (ICN 361752) dated April 2004 actually indicates that employers should not use the ITIN for reporting earnings on the Form W-2 for someone who was hired or worked in error. (See page 12) The publication does go on to say that employer's should enter all zeros in the Social Security number field of Form W-2.

2) This publication does not specifically indicate that this approach also applies to Form 1099-R and retirement plan distributions.