It’s a well-known fact that the Employee Retirement Income Security Act of 1974 (ERISA) established specific reporting and disclosure obligations for qualified retirement plans. Less well known but equally important is the fact that ERISA also spells out how long a plan sponsor must retain plan documents and records that support those obligations.
The topic of record retention can be broken into three general areas:
- What records should be kept?
- How long should they be kept?
- How should they be archived?
The short answers are:
- All records that support the plan’s annual reporting (Form 5500) and disclosure requirements should be retained.
- All plan related materials and records should be kept for a period of at least six years after the date of filing an ERISA-related return or report.
- Records should be preserved in a manner and format (electronic or otherwise) that permit ready retrieval.
Ultimately, the responsibility to retain these records lies with the plan administrator (the employer). While it is fairly common for a plan sponsor to contract with outside service providers who may provide certain reports and prepare the plan’s Form 5500 filing, the plan administrator is ultimately responsible for retaining adequate records to support the reports and filings. In addition, the Department of Labor (DOL) requires employers to maintain records sufficient to determine the amount of benefits accrued by each plan participant.
Plan documents
ERISA requires that plan administrators retain the following types of plan documents: original signed and dated plan document and all original signed and dated plan amendments (dates and signatures should be easily visible), a copy of the plan’s most recent IRS approval letter, and copies of Form 5500.
Form 5500 can follow the six-year retention rule. However, actual plan documents and amendments should be maintained from adoption until after the plan is terminated. While plans are routinely restated every five or six years, the IRS may, on occasion, go back beyond the prior restatement. It is important to remember, especially when switching vendors, that it’s the employer’s responsibility to maintain these documents.
Supporting documents
Reports that support these documents should also be retained, including financial reports, Trustees’ reports, journals, ledgers, certified audits, investment analyses, balance sheets, income and expense statements, corporate/partnership income-tax returns (to reconcile deductions), documentation supporting the trust’s ownership of the plan’s assets, evidence of the plan’s fidelity bond (if applicable), and copies of nondiscrimination and coverage test results.
Documentation that supports decisions made by the plan administrator should also be retained, including copies of all corporate/partnership actions and administrative committee actions relating to the plan.
Census and other data
Payroll records used to determine participant eligibility and contributions (including details that support an exclusion from participation) should be retained. Records that establish hours of service data must also be kept to demonstrate the determination of allocations and vesting. Note: It is critical that sponsors keep complete census data, not just data on those who are eligible to participate.
Communications
Copies of all communications provided to participants and/or beneficiaries should be retained (including Summary Plan Descriptions, Summaries of Material Modifications, and anything else describing the plan). Copies should also be kept of other forms of communication (including notices, disclosures, webinars, slides, and e-mails). Recent plan audits have raised issues regarding whether all eligible employees who chose not to defer actually had the option of participating in their 401(k) plan. Records should be maintained to prove plan participation was made available to all eligible employees.
Participation forms and tax reporting
For plan audit purposes, documentation must be kept to demonstrate that participant transactions are conducted in accordance with plan document provisions. Examples include copies of all documents relating to plan loans, withdrawals, and distributions (including copies of spousal consents) and plan distribution records (including Forms 1099-R).
Duration of storage
As noted above, these records generally should be kept for a period of six years after the date of the filing to which they relate. However, good practice suggests that certain records be kept for the life of the plan — specifically all plan documents dating from the plan’s inception. The thicker the paper trail, the easier it will be for the plan to respond to an inquiry from a governmental agency or a request for information from a plan participant.
Records must be kept in such a way that they can be readily retrieved. To the extent that records are lost, stolen, or destroyed before the expiration of the six-year period, the plan administrator will be required to recreate the records, unless doing so would cost an excessive or unreasonable amount.
Electronic storage
According to DOL regulations, electronic media may be used to comply with the record retention requirements — provided the recordkeeping system meets the following requirements:
- There are reasonable controls to ensure the accuracy of the records;
- It is capable of indexing, retaining, preserving, retrieving, and reproducing the electronic records. The retrieval issue becomes more interesting as equipment is updated and upgraded. For example, records retained on microfiche or floppy disks may fail this test if there is no way to read them;
- Records can be readily converted into legible paper copies;
- It is not subject to restrictions that would inappropriately limit the access to the records.
What to do with paper records
Most original paper records may be disposed of after they are transferred to an electronic recordkeeping system, provided the recordkeeping system complies with the above requirements. It is important to note that originals may not be discarded if they have legal significance or inherent value (e.g., notarized documents, insurance contracts, stock certificates, and documents executed under seal).
Archiving
Proper and complete archiving of plan records is essential. Due to advancements in technology, many transactions do not take place on paper, which presents an added challenge to the recordkeeping requirements. Nonetheless, the plan’s records should be periodically reviewed, updated, and purged (only to the extent appropriate). This will be time well spent and serves double duty as an overall audit of the plan’s operations.
As a practical matter, plan sponsors may want to keep records for a longer period in case of legal actions from participant divorce actions (qualified domestic relations orders, or QDROs) or lawsuits brought by disgruntled employees.
