Practical Implications Of Immigration Enforcement Activity On Benefit Plans – Part II

With the Trump Administration's continued emphasis on enforcement of U.S. immigration laws, employers are increasingly concerned about worksite raids. In certain circumstances, immigration law enforcement officials will make arrests and detain workers. Benefit plan administrators should consider how such detained workers are treated under company benefit plans. For additional information regarding how an undocumented worker could become a plan participant, see here.

What happens when a worker is detained? Can a detained worker be released later?

The U.S. Immigration and Customs Enforcement (ICE) addresses these questions as follows:

Detention is non-punitive. Once an alien is transferred to ICE custody, the agency makes a custody determination. ICE uses its limited detention resources to detain aliens to secure their presence for immigration proceedings or removal from the United States — as well as those that are subject to mandatory detention, as outlined by the Immigration and Nationality Act, or those that ICE determines are a public safety or flight risk during the custody determination process.

When an alien is not subject to mandatory detention or is not deemed to be a public safety or flight risk, ICE exercises its discretion in making custody determinations to release aliens with conditions. These custody decisions are made on a case-by-case basis and after considering the totality of circumstances — primarily considering risk of flight, national security threat, and risk to public safety.

ICE also takes other factors into consideration — including when an alien has a serious medical condition, is the primary caregiver of minor children, or other humanitarian considerations. [website link 10/7/2025 https://www.ice.gov/detain/detention-management]

Therefore, benefit plan administrators must determine whether a detained worker remains covered under certain company benefit plans – and when such coverage ceases.

401(k) Plans

Will employee contributions stop?

Employers may decide to remove detained employees from payroll. If this occurs, then detained employees no longer receive compensation from which contributions may be deducted. Conversely, if employers continue detained employees on payroll, then 401(k) contributions will continue until the employee affirmatively modifies their 401(k) election (e.g., decreasing deferral percentage to 0%).

Will detention impact vesting service?

It depends on how vesting service is defined and measured by the 401(k) plan document. If the plan defines vesting service as 1,000 hours of service during a plan year, then an employee's detention may interfere with vesting service credit. If, however, the plan uses elapsed time to measure vesting service, then vesting may not be impacted because detention does not qualify as a period of severance for 401(k) plan purposes, and any leave of absence of less than 12 months continues to count as vesting service.

Will detention trigger a distribution event?

It depends on how a termination of employment is defined or described in the 401(k) plan. It is unlikely that detention is mentioned in the plan. However, the 401(k) plan administrator may consider how terms like "leave of absence" or "active employee" are defined. Depending on reasonable interpretations on these or similar terms, a detained employee may be eligible for a 401(k) plan distribution. If so, plan administrators should be mindful of the practical challenges associated with processing a check to an undocumented employee.

Health Plans

Will detention trigger a loss of health plan coverage?

Benefit plan administrators should review the terms of the health plan, including the summary plan description and any material provided during open enrollment. An employee's detention does not, by itself, constitute a qualifying event for the Consolidated Omnibus Budget Reconciliation Act (COBRA) purposes. However, if the detention leads to a reduction of working hours that results in a loss of health coverage, COBRA will be triggered.

Most health plans restrict eligibility to regular, active employees who work at least 30 hours per week. A detained employee will most likely fall below the 30-hour threshold, and as a result, trigger COBRA rights (provided the employer maintains at least 20 employees, otherwise state mini-COBRA rights may be triggered).

To minimize adverse effects on detained employees, benefit plan administrators may consider the following (subject to collective bargaining agreements, if applicable):

• Amend the health plan to extend coverage to detained employees for a certain period of time. If the plan is fully insured, this will require insurance company consent. If the plan is self-funded with stop-loss insurance, the stop-loss insurer must consent to the amendment.
• Subsidize COBRA premiums for a specified period of time. The employer subsidy would not be treated as taxable wages unless the health plan is self-funded and highly compensated employees receive the subsidy.

Note that, although a detained employee may not be receiving current compensation, the full amount of any medical flexible spending accounts and contributions made to date should still be made available.

Deferred Compensation Plan

Internal Revenue Code Section 409A governs the tax consequences relating to deferred compensation plans. In general, an employee may only receive a distribution if certain specific events occur such as a "separation from service" or an "unforeseeable emergency" (each as defined in Section 409A). While detained employees are not directly contemplated in the Section 409A rules, a plan administrator should carefully consider the circumstances of the detention in light of the plan terms to determine whether a distribution should be required or permitted. As noted above, there are practical considerations regarding processing payments to undocumented employees.

Action Item Checklist

General Actions

• Review benefit plan documents for definitions such as "active employee," "leave of absence," and "separation from service."
• Determine if detained employees remain covered under each benefit plan.
• Consult legal counsel for guidance on plan interpretation and compliance.

401(k) Plans

• Decide if detained employees will remain on payroll.
  • If removed, stop 401(k) contributions.
  • If retained, continue contributions until the employee modifies their election.
• Review plan terms for distribution eligibility.
• Prepare for practical challenges in processing distributions to undocumented employees.

Health Plans

• Examine health plan eligibility requirements (e.g., minimum hours worked).
• Determine if detention leads to reduced hours and loss of coverage, triggering COBRA or state mini-COBRA.
• Consider amending the plan to extend coverage for detained employees (requires health insurer or stop loss insurer consent).
• Ensure detained employees can access the full amount of their medical flexible spending accounts.

Deferred Compensation Plans

• Consult legal counsel for guidance on Section 409A rules and whether the detention should be considered as a "separation from service" or an "unforeseeable emergency."
• Address practical issues in making payments to undocumented employees.

Documentation & Communication

• Document all decisions and rationale regarding detained employees' benefit status.
• Communicate clearly with affected employees and their covered dependents about any benefit coverage changes and options.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.