Unauthorized Workers in Retirement Plans: Key Considerations for Plan Sponsors and ERISA Counsel

Under the Fair Labor Standards Act (FLSA), undocumented or under-documented workers are considered "employees" without any exceptions or exclusions under ERISA for employees who are not legally authorized to work in the United States. Employers are subject to all applicable ERISA and DOL rules for ERISA-covered plans for all employees, including those not authorized to work in the U.S.

Based on the lack of exceptions or exclusions for unauthorized workers under ERISA, some courts have held that plan administrators abuse their discretion in excluding illegal alien workers from participating in ERISA-covered plans. Other courts have upheld such exclusions on the theory that participation arose as a result of fraud. Employers must ensure the language in their plan documents is sufficient if unauthorized workers are members of their retirement plans.

Also, employers must consider the tax reporting and withholding rules as applied to unauthorized alien workers. U.S. tax law references aliens as either resident or nonresident with varying tax treatment based on such categories. This determination, as far as for residency for tax purposes, is different from U.S. immigration laws and has a profound effect on tax reporting and withholding obligations of employers.

Listen as our expert panel discusses ERISA and DOL guidance for unauthorized workers in retirement plans, factors to consider under the Internal Revenue Code, and overcoming challenges in tax reporting and withholding. The panel will also address methods on handling missing or incorrect employee information and other critical items when unauthorized workers are members of retirement plans.

1. ERISA and DOL guidance
2. Immigration issues and key considerations
3. Tax reporting and withholding issues
   1. Tax reporting and withholding for U.S. persons
   2. Tax reporting and withholding for non-U.S. persons
4. Missing participants and mechanisms for compliance
5. Best practices and effective compliance methods for plan sponsors

The panel will review these and other key issues:

• What are the critical considerations for plan sponsors who discover unauthorized workers in their retirement plans?
• What are the applicable ERISA rules and DOL guidance?
• What immigration issues and applicable laws apply to plan sponsors of retirement plans with unauthorized workers?
• What are the tax issues and challenges that arise in regards to unauthorized workers in retirement plans?
• What mechanisms are available to plan sponsors to ensure compliance?