An employer has discovered that one of his employees provided false information (ID, SSN, etc) and is an illegal alien. After the discovery the employee was terminated. The employer sponsors a discretionary profit sharing plan. The illegal alien received allocations in the plan.

In a way, this is somewhat of the reverse of an otherwise eligible employee not having received a proper allocation and the plan sponsor's taking corrective action to provide benefits that the employee should have received.

Does that fact that this person provided false imformation that resulted in his employment and coverage require corrective action to reallocate his account balance to the legal employees who would have otherwise received the allocation or is the plan required to pay him the benefits ?

Thanks,

Thomas Pritchett, CPA

Under ERISA an illegal alien has a right to benefits accrued under the plan. However, the participant will have to provide proof of identity satisfactory to the Plan ad. and a tax Id in order to receive payment. If the ee was an illegal alien it is unlikely that such documentation will be provided. Under IRS reg. 1.411(a)-4(b)(6), the benefits of a participant may be forefited if the plan cannot locate the participant after benefits are payable provided the plan has such a provison. (e.g., the participant does not respond to correspondence sent to his last known address.) The benefits would have to be reinstated if the participant or beneficiary makes a claim for the benefit at a later date.

Byut if the recipient is a non-resident alien, no tax i.d. number is required.

Some prior discussions:
http://benefitslink.com/boards/index.php?showtopic=16873
http://benefitslink.com/boards/index.php?showtopic=18212
http://benefitslink.com/boards/index.php?showtopic=20082
http://benefitslink.com/boards/index.php?showtopic=15689

Haywood: All workers are required to complete a W-4 form for wage witholding in the absence of filing another form, eg. 8233. There is no exemption from filing a W-4 for non resident aliens who are not legally permited to work in the US since they are not permitted to work. Since retirement benefits are deferred wages a Tax ID # should be required for distributions unless the employee can prove he is a resident of a country that has a tax treaty with the US. I think the exceptions for requiring a tax ID # for non resident aliens who perform services in the US applies to individuals who do not meet the substantial presence test, e.g., a foreign entertainer who is paid for a 1 time guest appearance in the US, not some one who is working on a continuous basis in the US, even though it is illegal.

Qualified plan distributions to non-resident aliens are reported on Form 1042-S, not 1099-R. An SSN/TIN is not required. As long as the US Government gets their 30% withholding, they don't seem to care about an SSN to associate with the income.
Being an illegal alien does not give the employer the right not to pay you for work performed. Nor does it give the employer the right not to pay you your deferrals or match or profit sharing that accrued on those wages. The wages don't retroactively disappear when the illegal status is discovered; neither do the benefits.

H: You seem to overlooking the obvious- how can a Plan admin trust any information requesting a distribution provided by a former employee who has committed identity theft? If Joe Blow is fired for providing false information that he was legally permitted to work in the US and he submits information that he is really Joe Schmoe, an illegal alien who is a citizen of country X, why should the PA accept this substitute information as correct, especially since the information will be provided from foreign countries where false identification is easily available? The PA who pays such a claim will be open to claims from later claimants who will claim to be Joe Schmoe with no way to sort out who is really Joe Schmoe. The risk to the PA is in having to pay multiple claims to imposters.