Current Thinking

Back to Basics: Record Retention

Retirement plans create a massive amount of paperwork. Retirement plan records include basic plan documents and adoption agreements, summary plan descriptions (SPDs), specific information about plan participants and beneficiaries, data needed to perform various tests, the tests themselves, governmental reporting, and contribution and distribution information.

The Employee Retirement Income Security Act (ERISA) provides rules for retaining retirement plan records. In addition, the U.S. Department of Labor (DOL) has issued regulations on keeping these records in electronic form. Keep in mind that the longer the paper trail, the easier it will be for a plan to respond to inquiries from a governmental agency or requests for information from plan participants.

Whose responsibility is it?
Generally, the burden of record retention falls on the plan administrator (the employer). However, it is possible that the job may be delegated to an outside service provider under the terms of its service agreement. Prior to changing service providers, employers should ensure that they receive copies of all necessary plan records from their current provider to alleviate future issues involving record retrieval.

How long must records be preserved?
Some plan records are retained for a fixed time period; others must be retained permanently. According to ERISA (Section 107), records used in the preparation of governmental reporting (such as Form 5500 and Form 1099-R) and participant disclosures (such as participant statements) must be preserved for at least six years from the date the report was filed (or should have been filed) or the disclosure provided. Note that retained reporting records must provide enough detail for the government to verify the accuracy of the report.

Plan records that must be maintained permanently include plan documents (including all adoption agreements and plan amendments), IRS determination letters, insurance contracts, SPDs, and board resolutions.

What about participant information?
As a practical matter, plan administrators may want to keep participant records longer than six years in case of legal action, such as participant divorce proceedings or dis-gruntled employee lawsuits. Participant information that should be retained includes:

• Determination of eligibility
• Hire and termination dates
• Beneficiary designations
• Notarized spousal consents and waivers
• Loan, hardship, and distribution documentation
• Hours worked for vesting and allocation purposes
• Compensation used for testing and allocations
• Elective deferral, matching contribution, and payroll records

How should plan records be preserved?
Proper and complete archiving of plan records is essential. Due to technological advancements, many transactions no longer take place on paper, which presents an added challenge. According to DOL regulations, electronic media may be used to comply with record retention rules provided the following requirements are met:

• The recordkeeping system has reasonable controls in place to ensure the accuracy of the records.
• The electronic records are maintained in reasonable order and in a safe and accessible place.
• The recordkeeping system should be 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 floppy disks may fail this test if no system drives are maintained to read that media).
• The electronic records can be readily converted into legible paper copies.
• The recordkeeping system is not subject to restrictions that would inappropriately limit access to the records.

With a few exceptions, original paper records may be disposed of after they are transferred to an electronic recordkeeping system, provided the system complies with these requirements. The original may not be discarded if it has legal significance or inherent value in its original form (e.g., notarized documents, insurance contracts, stock certificates, and documents executed under seal).