Employee Enrolled into Funds Supplied False Social Security Number

[rocknrolls2]

A contributing employer enrolls a new employee into a multiemployer money purchase and health & welfare funds. Assumne further that we are referring to two individuals: one of whom is an undocumented alien and one who is an American citizen. After contributions have been made by the employer and allocated to or for the benefit of the employee, it is discovered that the individual supplied a false Social Security number. Frpm the perspective of the two funds, what should be done in this instance regarding the following: (a) the amounts that have already been contributed; and (b) the payment to the fund of future contributions? At the outset, it is important to note that the contributing employer, and not the fund, is responsible for complying with the I-9 requirement.

In my view, for (a) and (b), an employee's citizenship or immigration status should not matter for purposes of answering this question. With respect to the amounts already contributed to the qualified plan, unless the plan document has been amended to take advantage of therecovery of overpayments, in accordance with Section 414(aa) of the Code, nothing can be done to theamount already allocated to the employee's account because it would run afoul of tIn my view, with respect to the amounts already contributed to the qualified plan, nothing can be done to theamount already allocated to the employee's account because it would run afoufloyhe antialienation requirement. If the employee terminates employment, the account could be forfeited subject to thevesting schedule and the timing of the distribution would be dependent upon whether the account is less than the cash-out threshold. For the health and welfare fund, there are no individual account balances and no accrued benefits under a welfare plan and contributions to the fund would be pooled, similar to a defined benefit plan. Unless the plan or trust includes a provision protecting amounts contributed by the employer on behalf of its employees, an argument can be made that the amount could be applied to satisfy administrative expenses under the fund or as acredit to future contributing employer contributions. If the individual's right to benefits is otherwise protected by the fund's plan and/or trust, and the individual incurs a claim for the period to which the contributions apply, then the individual could obtain coverage and/or obtain reimbursement of a medical or dental claim incurred during that period.re

With respect to future contributions, for both the money purchase fund and the health and welfare fund, the contributing employer should be notified that no future contributions on behalf of the individual will be accepted by the funds. My reasoning is that the funds were not aware of the validity of the Social Security number issue when the previous contributions were made. However, once the funds became aware of these facts, continuing to accept such contributions could make the funds complicit in the fraud.

Now forthe real heart of my question: considering the implications of ejecting the "employee" from the plans and their impact upon the plan's qualification and eligibility for income tax exclusions, does anyone have any suggestions or other thoughts concerning the adoption of an amendment containing pro-active language which would (i) enable the funds to revoke contributions allocated (or benefits accued in the case of a defined benefit plan) prior to the fund's discovery that the employee supplied a false Social Security number, (ii) if (i) is not permissible, prevent the allocation of future contributions to the employee's account, (iii) to the extent amounts previosly contributed to the fund on behalf of the employee cannot be revoked, to prevent vesting of such contributions; or (iv) to provide a blanket exclusion of such employees from participation in the plan without causing havoc or negative results for coverage testing? In a sense, this is something that plans should be able to do since Social Security numbers are integral to proper tax withholding and reporting from both a payrolll and plan administration perspective.

Thanks in advance!

 

 

[Paul I]

You have a good argument for how to address any funds that have been contributed to the funds.  With respect to an amendment containing pro-active language, you likely do not want to put the fund in the position of policing the information submitted by the employer.

You note that the contributing employer, and not the fund, is responsible for complying with the I-9 requirement. If anything, the employer who is enrolling the individuals and submitting contributions should address this issue.  The issue goes beyond the two funds and extends to all compensation paid by the employer to the individual.  

The employer may or may not know than an individual does not have to have a Social Security Number to receive compensation or to participate in a plan.  The individual or the employer definitely should not just make up a number.  They should apply to the IRS for an Individual Taxpayer Identification Number (ITIN) https://www.irs.gov/tin/itin/individual-taxpayer-identification-number-itin  

Many plans' provisions would allow anyone who gets US compensation to become eligible to participate.  The fund could consider including a requirement (either operationally or in the plan document) that the employer must represent in writing ( and subject to responsibility for any consequence for failing to do so) that they have validated the SSN or ITIN for everyone for whom the employer submits funding.

From the IRS website:

Who's eligible for an ITIN

If you're a resident alien, nonresident alien or their spouse or dependent, you can apply for an ITIN regardless of immigration status.

Resident alien or nonresident alien

If you're not a U.S. citizen, your tax status can be either:

• Resident alien – If you were present in the U.S. for more than 183 days* (substantial presence test) or you’re a lawful permanent resident of the U.S. (green card test)
• Nonresident alien – If you don’t meet either the green card or substantial presence test for resident alien status.

 

These are just some thoughts that may stimulate some further ideas about how to frame and address the issues.  I definitely recommend that you get legal counsel involved before implementing any changes to the plan document or to administrative procedures.

[Peter Gulia]

Beyond other aspects, this might be an occasion for RTFDs—all of them.

Consider (at least) each plan’s plan documents; each plan’s trust documents; the employer’s participation agreement for each employee-benefit plan; each relevant collective-bargaining agreement, and each project-labor agreement; and anything else that touches either employee benefits or labor relations.

ERISA § 3(6)’s definition for an employee is “any individual employed by an employer.” That definition does not by itself exclude a worker because the employer’s employment of the worker is (or was) unlawful.

Before beginning your work, consider carefully exactly who is and who isn’t your client. That can affect how you approach the situation.

This is not advice to anyone.

[Artie M]

I agree with @Peter Gulia.  I am not aware of any general rule under ERISA or the Code that would render an individual ineligible to participate in a multiemployer plan solely because the individual lacked work authorization or provided an incorrect SSN. Rather, the relevant inquiry is whether the individual was a common-law employee performing covered employment for a contributing employer under the applicable collective bargaining agreement and otherwise satisfied the plan's eligibility requirements. 

Common-law employee? Likely yes. An individual may have violated immigration laws, but that does not automatically mean the individual is not an employee for plan purposes.  The Code and ERISA do not condition employee status on lawful immigration status.

The IRS and courts have long recognized that unauthorized workers may still be employees for federal tax and employment law purposes.  E.g., wages paid to unauthorized workers are generally still wages for employment tax purposes, employers still have withholding obligations, and unauthorized workers may still be common-law employees.

Covered employment under CBA? Presumably yes.

Contributions required under the CBA? Presumably yes.

False SSN? Administrative problem, e.g., W-2 reporting, payroll tax reporting, benefit administration, etc.  And perhaps for the multiemployer plan a participation identification issue (wrong SSN = wrong Person).  Sometimes multiemployer plans take the position that contributions cannot be credited because the SSN does not match SSA records.  If so, the real issue is we cannot properly identify the participant.  That is different from the participant was ineligible.  Here, the correction may involve obtaining the correct identifying information and remapping contribution history.  But those are generally administrative/reporting issues, not necessarily eligibility issues.

Undocumented status? Potential immigration issue, but not obviously a plan eligibility issue.

If the person was hired, performed services,  paid wages, treated as an employee, direction/control etc, then the fact that the SSN later proves incorrect does not retroactively mean the person was never an employee.

I mean what specific plan, CBA, participation agreement, trust, etc. provision makes these individuals ineligible?

Some multiemployer plans contain eligibility language tied to covered employment, covered employees, bargaining unit status, participation agreements. Is there any language specifically addressing undocumented workers--I would be surprised to see it.

Also, this isn’t an issue of first instance.  Construction, hospitality, agriculture, and certain manufacturing industries multiemployer funds have had to have dealt with this 

We don’t usually see it in retirement plans but often there are provisions in welfare plan documents that state that fraud, misrepresentation to the company of material facts can vitiate eligibility.  I have not looked at this but that might ve an avenue to look at.

So at this point, I would be inclined to view this as primarily a participant identification and benefit administration issue, not an eligibility failure, unless the recordkeeper can point to specific plan language or legal authority that says otherwise.

One other practical question: Are these individuals no longer employed and only now being discovered because they applied for benefits? That often reveals what the real issue is.