With immigration enforcement in the news, some employers may be wondering what responsibilities they have related to their retirement plans, if an employer discovers that an employee lacks documentation authorizing the employee to work in the United States legally. While there is not clear guidance in this regard, it appears to be inconsistent with ERISA and the language of most plan documents to exclude unauthorized workers merely on the basis of their lack of documentation.
ERISA and Department of Labor Guidance
Although the Department of Labor (“DOL”) has taken the position that undocumented or under-documented workers are “employees” under the Fair Labor Standards Act (“FLSA”) and the Migrant Seasonal Agricultural Worker Protection Act (“MSPA”), it has not done so explicitly in the context of ERISA. In fact, ERISA itself does not contain any exceptions or exclusions for employees who are not legally authorized to work in the United States.
Some courts have held that plan administrators have abused their discretion in excluding unauthorized aliens from participating in ERISA-covered plans on that basis alone. In the context of insured life insurance plans subject to ERISA, however, other courts have held that unauthorized workers may be excluded if their benefits were obtained by fraud, when specific contractual language authorized the exclusion for that reason.
Most retirement plans include a “common law” definition of employee, which does not take into consideration whether a worker is authorized to work in the United States. Therefore, unless a retirement plan has a specific exclusion for unauthorized workers or workers whose participation arose as a result of fraud, it appears to be inconsistent with both ERISA and plan terms to exclude those workers from participation, or cause them to forfeit their benefits.
For nondiscrimination testing purposes, Internal Revenue Code (“Code”) Section 410(b) does allow sponsors to exclude nonresident aliens without U.S.-source income, but any common law employee (whether authorized or not) working in the U.S. would have U.S.-source income. Even if a plan document provision excluded unauthorized workers, such workers would have to be considered as a part of Code Section 410(b) minimum coverage testing.
When confronted with the possibility of an unauthorized worker, there are many legal considerations for employers outside of the ERISA context. With that being said, given that the DOL generally has taken the position that unauthorized workers must be treated the same as other common law employees for other employment law purposes, a prudent approach for employers is to follow the terms of their retirement plans regarding eligibility for benefits and to not assume an unauthorized worker in ineligible to participate. Of course, every situation is unique, and consultation with experienced immigration and benefits attorneys is advisable.
About the Author
Eric W. Gregory is an Associate in Dickinson Wright’s Troy office where he assists clients in all areas of employee benefits law, including qualified retirement plans, welfare plans, and non-qualified compensation programs. Eric can be reached at 248-433-7669 or firstname.lastname@example.org and you can visit his bio here.