How Immigration Enforcement Shapes the Future of Retirement Plans

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Key Takeaways

• Deporting unauthorized workers could reduce Social Security funding by $20 billion annually, accelerating trust fund depletion projected by 2033.
• Unauthorized workers legally accrue ERISA retirement benefits under “common law” employee definitions, despite inconsistent court rulings regarding plan exclusions.
• Trump-era policies, like DACA termination and stricter I-9 audits, strain employers’ compliance and disrupt retirement plan contributions.

The interplay between immigration enforcement and retirement plans has become increasingly complicated under recent policy measures. The Trump administration’s intensified focus on immigration enforcement has triggered changes that ripple not only through workforce demographics but also through the mechanics of administering retirement plans. Employers and plan sponsors now face the dual challenge of complying with immigration laws and maintaining their obligations under retirement plan frameworks, particularly when unauthorized workers may be participants.

How Immigration Enforcement Shapes the Future of Retirement Plans

Immigration enforcement initiatives, particularly mass deportations, carry notable implications for Social Security funding. President Trump’s immigration policies, which include the proposed deportation of large numbers of unauthorized workers, could weaken the cash flow to Social Security. The 2024 Social Security Trustees Report already predicts that, without Congressional changes, the retirement trust fund will be exhausted by 2033. Deportations could bring that deadline closer.

The Social Security Administration has projected that deportations could cut annual funding by $20 billion. This is tied to the contributions made by unauthorized workers through payroll taxes. Despite lacking eligibility to claim Social Security benefits, these immigrants collectively contribute billions to the system. In 2022 alone, unauthorized immigrants paid an estimated $25.7 billion in Social Security taxes and $6.4 billion in Medicare taxes. Without these substantial contributions, the financial foundation of Social Security could face additional stress, impacting all current and future beneficiaries.

Legal Ambiguity on Unauthorized Workers in Retirement Plans

One critical area of concern for plan administrators is how to handle unauthorized workers in retirement plans. Under the Employee Retirement Income Security Act (ERISA), an “employee” definition doesn’t explicitly exclude undocumented workers. Most plans rely on a “common law” employee definition, meaning that unauthorized workers may legally accrue retirement benefits despite their immigration status.

This legal gray area has contributed to mixed rulings in court. Some courts have sided with workers, finding that plan administrators acted improperly when excluding unauthorized workers from ERISA-covered plans. Other rulings have allowed restrictions, especially when fraud is involved, such as in situations where forged documents are used. Often, the specific language in plan documents determines these outcomes. For example, insured life insurance plans with clauses addressing fraud may validly exclude participants.

Specific Challenges for Plan Administrators

Handling retirement plans in the context of heightened immigration enforcement presents several operational and legal challenges for plan administrators. These include:

Identity Verification: Administrators must ensure that payouts are made to the correct individuals. When workers use false Tax Identification Numbers (TINs) or Social Security Numbers (SSNs), this process becomes not only cumbersome but also fraught with legal risks.
Tax Reporting Obligations: Distributions made to unauthorized workers come with complex tax reporting requirements. Without verified identification, reporting becomes difficult, potentially leading to compliance failures.
Difficulty in Tracking Participants: Unauthorized workers are more likely to move frequently or leave incorrect contact information, making it harder to locate them after employment ends. Such complications may result in unclaimed benefits or forfeitures.
Compliance in Nondiscrimination Testing: Even if a retirement plan’s language excludes unauthorized workers, these individuals must still be included in minimum coverage testing under Internal Revenue Code Section 410(b). This makes compliance even more burdensome for administrators.

Recent Changes in Immigration Policy

Policy adjustments under the Trump administration have further influenced the landscape for retirement plans. These changes include:

Rescission of “Sensitive Areas” Policy: Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP) can now conduct enforcement actions in previously protected areas like schools and churches. This policy change removes geographical limitations that previously provided some safety for unauthorized immigrants.
Stricter Adjudications: Immigration benefit applications are now subject to higher scrutiny, affecting employers and creating delays in securing necessary work authorizations for foreign nationals.
No Policy Deference: Under USCIS practices, extensions and renewals for immigration benefits are now reviewed as rigorously as initial applications. This results in increased unpredictability for both workers and employers, particularly for long-standing employees facing new oversight.
Elimination of Temporary Immigration Protections: Programs like Deferred Action for Childhood Arrivals (DACA) and Temporary Protected Status (TPS) are being terminated, leading to sudden status losses for many individuals contributing to their retirement plans.

Implications for Employers and Retirement Plan Managers

Employers and retirement plan administrators must adapt quickly to these evolving dynamics. Several practical actions can help mitigate legal and compliance risks:

Revisit Plan Language: Ensure the wording of retirement plan documents clearly reflects legal interpretations regarding unauthorized workers. Ambiguities or outdated terms could lead to liability.
Enhance I-9 Procedures: With increased I-9 audits and heightened enforcement actions, robust recordkeeping and compliance with employment eligibility verification processes are more critical than ever, particularly for sectors like agriculture, hospitality, and construction.
Prepare for Delays in Immigration Processing: Employers must anticipate longer timelines for immigration benefits and plan systematically for delays that might impact workforce stability.
Assess Workforce Disruptions: With the phasing out of DACA and other programs, some sectors may experience workforce reductions. Employers should consider how abrupt loss of workers will affect payroll contributions to retirement plans.
Understand Tax Challenges: When distributing retirement benefits to unauthorized workers, administrators should be ready for complex tax issues due to potential mismatches in identification numbers.
Fulfill Fiduciary Duty: ERISA requires plan administrators to act in the best interest of participants. Unauthorized workers, if participants in the plan, are no exception. Navigating these duties against the backdrop of strict immigration policies needs careful attention.

Broader Developments and Outlook

The interplay between immigration enforcement and retirement plans continues to be dynamic. Some recent changes beyond immigration policies are also relevant:

SECURE Act’s Impact: Signed into law in 2019, the SECURE Act introduced changes like raising the required minimum distribution age to 72. These adjustments have mild cascading effects on how retirement benefits for all employees, including unauthorized workers, are managed.
Catch-Up Contribution Rules: New IRS regulations, issued in early 2025, address catch-up contributions for participants with higher Federal Insurance Contributions Act (FICA) wages, bringing additional compliance requirements for plan sponsors.
Biometric Appointments: Certain immigration-related processes now require biometric verification for dependent family members, adding another layer of administrative burden for families and employers alike.
Worksite Enforcement: Immigration enforcement seems poised to ramp up further, particularly focused on unauthorized workers hired in industries like food production.

Conclusion

The ongoing changes in immigration enforcement, combined with legal and operational complexities in retirement plan administration, put additional pressure on employers and plan managers. Unauthorized workers, despite facing deportation risks, remain integral to retirement plan structures through their contributions to Social Security and participation in employer-sponsored benefits. According to VisaVerge.com, adapting to such changes requires employers to monitor enforcement patterns and proactively adjust retirement plan language, tax reporting, and I-9 compliance procedures.

With the consistent evolution of immigration and retirement-related policies, it is crucial to stay informed and seek expert consultation. Balancing legal obligations and fiduciary responsibilities is not a straightforward task, particularly when overlapping regulations come into play. To stay updated on Social Security policies and relevant legal guidance, employers can refer to the Social Security Administration’s official page at www.ssa.gov.

In the years ahead, the interplay between retiring worker demographics, Social Security viability, and immigration enforcement will remain a key area impacting all stakeholders—from individuals to the broader economic framework dissecting payroll taxes and benefits management.

Learn Today

Immigration Enforcement → Actions by government agencies to identify, detain, or deport individuals violating immigration laws.
Employee Retirement Income Security Act (ERISA) → A federal law that sets standards for retirement and health benefit plans in private industries.
Retirement Plan Frameworks → Organizational structures or systems outlining eligibility, benefits, and rules for employee retirement savings plans.
Unauthorized Workers → Individuals employed without legal authorization to work in the country, often lacking proper immigration documentation.
Tax Identification Numbers (TINs) → Unique numbers issued by the IRS for tax reporting purposes, used by individuals and entities.

This Article in a Nutshell

Immigration Enforcement and Retirement: A Complex Nexus

Immigration policies shape retirement funding in unexpected ways. Deporting undocumented workers could drain Social Security by $20 billion annually, as these individuals contribute billions without claiming benefits. Employers face challenges balancing compliance, plan management, and workforce stability. Adapting retirement plans and monitoring immigration shifts are essential for sustaining financial and demographic equilibrium.