The labor market is tight right now. As such, many business owners are finding it difficult to fill all open positions. And when they do fill them, the hiring process may seem unorganized or rushed. The goal is to always hire legal, documented workers, but occasionally, issues may arise with the supporting documentation or be uncovered during a governmental inspection by ICE.
In any case, employers face an interesting challenge as it applies to employer-provided benefits and retirement plans. Some workers are participating in and earning benefits from the plans regulated by the Employee Retirement Income Security Act (ERISA) but may not be eligible—and may not realize their lack of eligibility.
How best to handle situations like this is complicated by various factors. First, while ERISA does not necessarily exclude workers without Social Security numbers or tax identification numbers from benefit plans, it does not explicitly protect their rights either. This lack of clarity is also problematic for employers who administrate such programs.
So, let's break it down into digestible pieces.
What is ERISA?
Saving enough for retirement is a challenge for every worker. ERISA was created in the 1970s to provide guidelines for employers to manage employee retirement plans. It is intended for private employers, not government-run agencies or religious organizations. ERISA provides minimum standards for retirement plans but does not require employers to have these plans. ERISA also provides standards for health plans and life insurance plans.
What ERISA requires
ERISA stipulates that employers must provide employees with information about retirement and pension plan options. This information includes how to file a claim, when they are vested, and changes made to the plans. ERISA standards also protect employees from any mismanagement of retirement funds.
Difficulties faced by employers
When employees leave their jobs—for retirement or other opportunities—retirement plans must be reported so benefits can be distributed or rolled over. However, this process usually requires a tax identification number. But some workers, often skilled immigrant or migrant workers, may not have a Social Security number, or they may have a false one. As a result, they may be hesitant to provide the necessary details. Therefore, employers face challenges in administering their plans.
Retirement plan distributions can be reported without a Social Security number. Instead, a worker could file Form W-7 to obtain an Individual Taxpayer Identification Number (ITIN) and provide that to the employer. The ITIN can be used on form 1099-R and for tax filing, although it may not be used for W-2 reporting. Nevertheless, likely out of fear, many migrant or immigrant workers will not apply for an ITIN. In addition, they may not realize that the Social Security Administration and the IRS do not typically share such information with immigration agencies.
Many employers are overwhelmed by the tax issues involved with offering retirement benefits to workers without some form of tax identification number. As a result, they may decide to terminate employees who do not have Social Security numbers or ITINs, or those who are using false ones.
What the courts say
In recent years, court decisions have been inconsistent. For example, in 2009, a federal district court ruled against the spouse of a worker without proper government documentation who was trying to recover death benefits after her husband died. In contrast, in 2016, a federal district court addressed companies that had not made pension plan contributions for workers without proper government documentation who had plan benefits as part of their collective bargaining agreement. The court ruled that the plans could enforce the collection of those unpaid contributions.
Advice for employers
Employers face many obstacles in employing workers without proper tax identification numbers. For example, some businesses require Social Security numbers for retirement plans, which discourages the workers from enrolling in plans altogether, but they keep these employees in their roles. Others may retain these workers but explicitly exclude them from the retirement plans.
Keep in mind, however, that if you opt to terminate an employee who lacks a legitimate Social Security number—and that employee has made their immigration or citizenship status public—you could face a discrimination suit, per ERISA Section 510.
Since the courts have been inconsistent and the Department of Labor has not provided clear guidance, you should use caution when employing workers without proper tax identification numbers and administering retirement and health plans. Every case can be different.The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.