To Purge Or Not To Purge

Plan Record Retention Requirements

As far as the IRS is concerned, there is no such thing as saving too many retirement plan documents. Plan sponsors, on the other hand, might find it necessary to free up file storage space periodically by purging documents no longer needed. Where do you draw the line?

The Law

The Internal Revenue Code provides that “books or records … must be kept available at all times for inspection by authorized internal revenue officers or employees, and must be retained so long as the contents … may become material in the administration of any internal revenue law.”

Fortunately, the majority of those documents do not necessarily have to be maintained in hard copy form. Under Department of Labor regulations, it’s permissible to maintain most records in electronic form, under the following conditions:

  • The recordkeeping system has adequate controls in place to ensure the integrity, accuracy, authenticity and reliability of the records kept in electronic form,
  • The electronic records are safely maintained in reasonable order, in a secure and accessible place, and in such manner as they may be made readily available for inspection or examination,
  • The electronic records can be readily converted into legible paper copies,
  • You establish and implement suitable records management practices, and
  • The recordkeeping system is not subject to any agreement or restriction that would compromise a person’s ability to comply with any ERISA reporting and disclosure requirement.

Many retirement plan sponsors utilize third-party administrators (“TPAs”) to provide a variety of services.. According to the IRS, using a TPA for services that involve electronic records doesn’t relieve the taxpayer (i.e., the plan sponsor) of its legal recordkeeping obligations and responsibilities. Even though a properly structured TPA service agreement allows some delegation of this responsibility, remember that ultimately, the responsibility rests with the sponsor.


What to Keep

Here’s a list of documents you should keep:

Plan documents. These files include the basic plan document, adoption agreement, amendments (if any), IRS determination letters, summary plan descriptions, summary of material modifications, annuity contracts, board and adopting resolutions, and trust records such as investment statements and financial statements.

Fiduciary records. These records include governing body meeting materials for review of fees and investments, fee disclosures, engagement letters, and TPA / service provider contracts.

Participant records. These files include enrollment forms, beneficiary designation forms, census data, account balances, contributions and earnings, qualified domestic relations orders, compensation data, and participant statements and notices. In addition, these files would include distribution documentation, loan records and hardship withdrawal records. (See the sidebar “Documenting Hardship Withdrawals and Loans.”)

Annual filings. Be sure to retain copies of each year’s Form 5500, including required schedules and supporting documents, summary annual reports, independent auditors’ reports (if your plan requires one), records of contribution allocations and required annual testing for coverage and nondiscrimination, and board minutes or similar declarations of the employer contribution amounts. Also maintain copies of any determination letter applications or similar filings (Form 5300 series).

Plan sponsors should retain these records approximately six years after terminating the plan and distributing all benefits.

Getting it Right

Record retention can seem like an overwhelming and daunting task, but it’s better to be safe than sorry. Consult with an ERISA attorney to assure full compliance with all applicable federal record retention requirements.


Sidebar: Documenting Hardship Withdrawals and Loans

The IRS clarified its rules for documentation of hardship withdrawals and participant loans on its website earlier this year. With respect to hardship withdrawals, sponsors must retain:

  • Documentation of the hardship request, review and approval,
  • Substantiation of the employee’s immediate and heavy financial need,
  • Documentation to support that the hardship distribution was properly made in accordance with plan provisions and the Internal Revenue Code, and
  • Proof of the actual distribution made and related Form 1099-R.

According to the IRS, it is insufficient for plan participants to keep their own records of hardship distributions. Further, electronic self-certification is insufficient documentation of the nature of a participant’s hardship.

Sponsors must retain the following records with respect to plan loans:

  • Evidence of the loan application, review and approval process,
  • A fully executed plan loan note,
  • If applicable, documentation verifying that the proceeds from the loan were used to purchase or construct a primary residence,
  • Evidence of loan repayments, and
  • Evidence of collection efforts associated with defaulted loans and the related Form 1099-R, if applicable.

It is not acceptable for plan administrators to allow participants to self-certify their eligibility for these loans.

Some professionals in the employee benefits industry have asserted that these clarified instructions are not consistent with existing regulations, and that the instructions lack the authority of a true regulation. Until the IRS determines their legitimacy and responds to these concerns, sponsors should adhere to the guidance, unless advised otherwise by counsel.

© 2015

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