I need help from a CPA - with qualified plan experience!

[Guest 4Kicks]

I need some help - or information on where to search.

I just got off the phone with a client's CPA. He is helping the client enter participant information into our recordkeeping system and received an error on the ss# because our system does not allow for ss# entries that are not valid (i.e., starting with a 9, etc.).

He stated the individuals they are entering are considered "Guest workers" (immigrants) according to the Immigration Amnesty Act - which did not pass legislation but he said it is currently pending. In any event, he is stating his client is required to enter and offer the qualified plan to these guest workers otherwise the plan will be considered discriminatory. He had received this direction with his office's National Tax Advisor Department, which receives their information from the Dept. of Treasury.

He did not have a citation for me to reference, but was very adamant that his client must allow these guest workers into the plan and a ss# is not required in order to do that. He said their plan document would support this.

This is the first I have heard of this type of situation - and maybe I am overanalyzing it and should allow the client to enter whatever numbers they want, they have ulitimate responsibility for the compliance of their plan in the event of an audit. I guess I just wanted to get an education myself on what this means - but translated in a way that a pension administrator can understand.

Thank you for your help!

[Guest mjb]

Q1 Are the workers legally entitled to work in US?

Q2 Did workers complete I-9 forms which were filed and certified by employer?

Q 3 Did workers complete W-4 withholding forms?

Q4 Have you discussed your problem with the client's recordkeeper as to why the SS # cannot be entered?

Q5 what is the relavence of citing something that has not been passed as a law?

[Kimberly S]

A foreign national who is in this country and legally permitted to work can obtain a Social Security number. Is the problem that these individuals don't know that, or are they illegals?

[Mike Preston]

Q1 Are the workers legally entitled to work in US?

Q2 Did workers complete I-9 forms which were filed and certified by employer?

Q 3 Did workers complete W-4 withholding forms?

Q4 Have you discussed your problem with the client's recordkeeper as to why the SS # cannot be entered?

Q5 what is the relavence of citing something that has not been passed as a law?

All of the above are irrelevant. Thw workers must be included whether they are legal or not, whether they have filled out I-9's or not, whether they completely W-4 or not, whether the recordkeeper's system is hopelessly outdated as to require a SSN and whether or not the law passes.

Me thinks the OP *IS* the recordkeeper and just has never run across this issue before.

[Guest mjb]

Mike. Wake up. If a person is not in this country legally thay are not permitted to work and the employer cannot legally pay compensation. Employers who employ illegals are violating federal law and can be prosecuted for paying compensation which includes pension benefits. Since ERISA does not preempt other fed laws illegal immigrants cannot recieve comp. Therefore they are not eligible for benefit accrual that will entitle them to benefits. If you had taken the time to read the W-4 you would have noticed that the employee certifies the information, including the SS number, under penalty of perjury. If certifiying an incorrect identity and SS number to the IRS is not a criminal act I dont know what is. Under your logic an employee who certifies incorrect information to the employer and commits perjury in an IRS filing should be rewarded by being paid benefits.

[Mike Preston]

Indeed they should. And they would. Suffice it to say that we have a difference of opinion. You might want to check with your friendly IRS auditor, though. They will quickly disqualify a plan for failure to include a worker, legal or not.

There is a public policy issue you have ignored. In no way shape or form does the law seek to advantage an employer over an employee the way you postulate. There is already an unfair relationship (balanced by various and sundry laws attempting to, er, balance the scales).

If you are correct, I'm sure you can use your lawyer-magic to find some cases where there were illegals who were treated the way you describe.

Good luck.

[austin3515]

I'm with Mike Preston. We've gone over this in detail for a client. What happened to my client was that they got the I-9, they had a valid ID (albeit fake , so the employer was not at fault when immigration (or whoever) arrested them.

The question was, what happens to their retirement plan balance? The answer we obtained was that they are indeed entitled to keep it, because nothing excludes illegal immigrants from a plan (the absence of a specific site to the contrary is the only "evidence" you'll find--check 410(b) for the list of permissible exclusions).

Regarding compensation, assuming the plan uses W-2 as the definition I doubt the IRS would agree that an illegal immigrant working illegally in the US should not receive a W-2 and pay the applicable taxes!!

I should point out that I am a CPA with retirement plan experience, though I should also point out that my CPA background is far from on point! This answer is from the QPA in me

[Guest mjb]

I need some help - or information on where to search.

I just got off the phone with a client's CPA. He is helping the client enter participant information into our recordkeeping system and received an error on the ss# because our system does not allow for ss# entries that are not valid (i.e., starting with a 9, etc.).

He stated the individuals they are entering are considered "Guest workers" (immigrants) according to the Immigration Amnesty Act - which did not pass legislation but he said it is currently pending. In any event, he is stating his client is required to enter and offer the qualified plan to these guest workers otherwise the plan will be considered discriminatory. He had received this direction with his office's National Tax Advisor Department, which receives their information from the Dept. of Treasury.

He did not have a citation for me to reference, but was very adamant that his client must allow these guest workers into the plan and a ss# is not required in order to do that. He said their plan document would support this.

This is the first I have heard of this type of situation - and maybe I am overanalyzing it and should allow the client to enter whatever numbers they want, they have ulitimate responsibility for the compliance of their plan in the event of an audit. I guess I just wanted to get an education myself on what this means - but translated in a way that a pension administrator can understand.

Thank you for your help!

Are you advising the client to contine to violate the immigration laws by employing individuals who are not allowed to work in the US? The first sentence of the OP state that the SS number were rejected which indicates that the indivuals are not legally permittd to work. The I-9 requires that the employee provide a valid social security no and if the number is invalid or fraudlent the employer must terminate the

employee or be subject to criminal prosecution. By the way the Immigration amnesty act was the bill that was rejected by the Senate last month which means that there is no basis for them to be employed as Guest workers. The only course of action is for 4 kicks to contact immigration counsel for the employer to determine if the employees have valid I-9s which will clear up this matter. Any other advice is adding and abetting a violation of the immigration laws.

[Mike Preston]

You won't find anything in my post indicating that they have an obligation of any sort to continue the employer/employee relationship. Certainly, if an employer has the right, or even the obligation under law, to fire the employee then counsel will no doubt advise the employer to do just that. However, from an employee benefit perspective, all I'm saying is that it doesn't matter one whit whether the employer/employee relationship is in violation of the immigration rules. If an individual is entitled to benefits under a plan, then the legal or illegal status of that individual is irrelevant. Give them the benefits they are entitled to or risk your plan's qualified status.

[Bird]

Try googling "individual taxpayer identification number" or look below*. A number beginning in "9" doesn't mean it is an invalid identification number, just that it's not a social security number. The numbers weren't rejected by the government, they were rejected by an admin system! Someone needs to check whether the plan excludes non-resident aliens without US source income, and whether or not they fall in this category, but this thread took a bad turn when it was assumed that these people were illegal.

*An ITIN, or Individual Taxpayer Identification Number, is a tax processing number only available for certain nonresident and resident aliens, their spouses, and dependents who cannot get a Social Security Number (SSN). It is a 9-digit number, beginning with the number "9", formatted like an SSN (NNN-NN-NNNN).

[Guest mjb]

Duh- that ID number will be on the I-9 form (or w-2) that the employee files with the employer which allows the employee to work in the US. My question relates to the reference by the OP to authorizing these individuals to work pursuant a "guest worker program" under non existent legislation. If employment is not authorized under the guest worker program then the employee must be certified to work by completing the I-9. What could be simplier?

Bird Postcript: According to P 12 of the ITIN instructions, an ITIN is generally not available to persons who are eligible to work in the US and hold an Employment Authorization Document (EAD) or are permitted to work as a non resident alien. These persons must must obtain a SS number. The ITIN may be applied for only if an individual has been denied a SS number. This is why it is necessary to contact immigration counsel to determine the individuals' employment status.

Q If the employees are to be employed in the US under a guest worker program how could they have non us source income. Why would they be subject to US immigration law if they have no us source income?

Austin: your post is so irrevalent that it is not worth a reply.

[Mike Preston]

mjb, it is your posts that are irrelevant. Certainly not austin's. The OP is, as far as I can tell, the third party administrator. Not the employer. It is not the third party administrator's job to police the plan sponsor for compliance with employment related laws, such as whatever the current flavor of immigration rules might be. You can expand this list to things like collective bargaining, davis-bacon, etc. That is the plan sponsor's responsibility.

The third part administrator is not in any way abetting a plan sponsor's decisions to violate laws if their system allows for the crediting of benefits to those who are employed by the company. Period. It is quite the contrary. The only role of the third party administrator is to identify the benefits provided under the terms of the plan and to enable those benefits. ERISA requires nothing less.

Your posts are completely off topic because they are revolving around advice a labor lawyer would provide to an employer, not advice that ERISA counsel would render to a plan sponsor.

[Mike Preston]

PS. Have you run out of lawyer pixie dust? I'm still waiting for a citation of a case where ERISA benefits are lawfully denied to those working illegally.

[Guest mjb]

Mike:

1. If your read the OP you will notice that the question relates to enrolling participants in a plan which doesnt mean that any benefits have accrued under the plan at this time. (The guest worker program was recently proposed as part of the failed program on immigration reform rejected in the Senate last month.) If the persons are not eligible to work it will be easier to back them out now instead of later when they are fired.

2. I would agree with your comment that generally a TPA is not required to check compliance with employment related laws with the client but this case is different in that the accountant for the client (not the client) is citing a non existant law as the authority to enroll participants who have not provided valid SS numbers for employment which violates federal immigration laws which is quite different from enrolling a participant who provides SS number that is later determined to be fraudlent. Are you saying that the TPA should not confirm with the employer whether or not the accountant's statement regarding the special status of these persons to work in the US as "guest workers" under non existant legislation are correct to avoid any harm to the client. You, Bird and Austin still have not provided any citation of authority which allows the payment of compensation to individuals who do not have a valid SS number. The ITIN notes that it is not to be used for eligiblity to work in the US which requires a SS number. For example the ITIN applies to persons who receive passive income from US based sources who are exempt from US tax but need an ID no to file for a refund or are exempt from tax under a treaty.

3. Maybe this low level of plan services that you espouse for TPAs is considered to be acceptable in LA LA land which has an estimated 1 million illegal immigrants but I dont believe that a reputable administrator would not confirm the statement from the accountant on the law permitting employment of these individuals with the client before proceding with enrolling these individuals in the plan.

[Mike Preston]

I think this revolves around timing. I say that the OP has posted the question, which he got from the accountant, after the employer/plan sponsor has already hired these folks and is now entering the information into the computer system. You appear to be saying that the OP has posted the question, which he got from the accountant, before the employer/plan sponsor hired these folks.

In my experience, the employers don't enter information into their administrative systems until after an individual has begun work.

If I can put on your unrealistic hat for a moment, if the question is as you posit, I would of course respond with: "Maybe you want to engage counsel to determine if hiring these people, which you admit to being "not yet legal" is a good idea."

But it all doesn't matter from the employee benefit perspective. If the plan sponsor has hired people, legal or not, and the plan sponsor pays them (or, better I should say, owes them) compensation, then that compensation is taken into account for benefit purposes. Period. End of discussion. That is, until you can find a citation that says otherwise.

Austin's post is still right on point.

Your view of hiring practices is myopic. Many an employer intentionally flouts the immigration laws. Thousands of people, if not hundreds of thousands, coast to coast, are employed by such employers. Many of them sponsor qualified plans. Each and every one of those employees is entitled to benefits. Whether the employer has an exemption for temporary workers, or HB-1 visas (or the time spent in the country prior to the time that the HB-1 visa kicks in) is just not part of the third party administrator's duty to investigate. In fact, a third party adminstrator that does so would be dangerously close to practicing law without a license. While a third party administrator can get away with opininng on issues that are confined to ERISA and the relevant IRC sections that are its counterpart, due to training and experience, especially with an enrolled actuary on staff, to opine on employment related law, even peripherally, seems like professional suicide to me.

It isn't LA LA land that has this as an issue. As I recall, Chicago has the highest illegal immigration body count in the country. Most people from Chicago take it as an insult to be compared with LA LA Land.

As I think about it, myopic doesn't really do your view justice. Can you think of a stronger term? I knew you could!

[Bird]

Did YOU say "duh" to ME?

I don't claim to know that much about immigration laws and fortunately for me don't need to, but the point was that these are, or may be, valid ID "numbers" - it's just that some admin system doesn't like them. That's my sense of the real problem here, not the actual "legality" or "illegality" of the workers. I suppose there's some chance that your leap to conclude that they are not allowed to work in the US has merit, but based on the overall quality of your posts I'd have to say that is a remote chance.

And as Mike Preston and Austin have noted, it really doesn't matter. They're entitled to plan benefits.

[masteff]

I just got off the phone with a client's CPA....

He stated the individuals they are entering are considered "Guest workers" (immigrants) according to the Immigration Amnesty Act - which did not pass legislation but he said it is currently pending. In any event, he is stating his client is required to enter and offer the qualified plan to these guest workers otherwise the plan will be considered discriminatory. He had received this direction with his office's National Tax Advisor Department, which receives their information from the Dept. of Treasury.

Since the issues about SSN vs TIN and including vs excluding NRA's w/ US source income have been covered, I'll throw a different comment in...

I guess as a CPA, my biggest problem in this scenario is the outside CPA trying to rely on pending legislation. Even if the Senate hadn't rejected it, when's the last time any of you took action based on "pending" legislation?

@ 4Kicks - I'd like to suggest you express concern to your client that the CPA was grossly wrong in fact (despite being generally right in principle). The client needs to be on notice that the CPA attempted to rely on pending legislation and might try to do so elsewhere w/ potentially adverse impact on the client. Business law is part of the standard body of knowledge for CPA certification and B-Law 101 says pending means 1) you can't rely on it and 2) you aren't bound by it.

[Guest 4Kicks]

Thank you for everyone who has responded.

Mike Preston is correct - we are the recordkeeper and have never run across this issue before. I would also agree the recordkeeping system is outdated and does not allow for an invalid ss#.

We also did receive this question from the client's accountant after the employer/plan sponsor has hired the individuals and is now entering the information into the computer system. Background on our shop - we are a TPA for small businesses, under 20 employees is our average plan sponsor. The only explanation I can think of that we haven't run across this situation before is that our plan sponsors must have received invalid I-9 or fake ss#'s because only ss#'s are able to be entered. It would be naive on our part to believe there are no illegal immigrants in all the plans we administer. I also agree that if and when illegals are pointed out and they have a balance that the plan will need to pay them the benefits.

mjb is also correct - these are guest worker individuals under nonexistent legislation. By way of that description, they are working here illegally. They have ITINs - that is what the CPA wants to enter. But the way he described it to me is that their internal CPA firm National Tax Advisor Department received instruction from the Dept. of Treasury and if they don't include these guest workers in the plan his client is at risk. I guess I was looking for other CPA input on relevance of that statement or if he stated that just to "scare" me.

It is clear this topic has some hot button issues, nevertheless I appreciate the input and response from everyone involved. It has given me a better understanding of the situation. I'm sure it has for all other readers as well. However, because this is a system limitation for us our approach will be to have the plan sponsor find another TPA that can fit their needs. It is a brand new client in which the funding or deductions have not started and we will happily refund their fees. It may not be the right approach, but until we lose enought business as a result of this limitation we won't seek out a new recordkeeping system.

Thanks again.

[austin3515]

I would jump in and defend myself, but Mike did such an incredible job of that I feel totally vindicated.