By: Victor H. Hicks II, CFP®, AIF®
Owner, Managing Principal
Lumin Financial, LLC
An Independent Registered Investment Adviser
Retirement plans create a massive amount of paperwork, and our clients often wonder how to manage the documents in order to be both compliant and sensitive to the information they contain. Amid plan documents, summary plan descriptions (SPDs), beneficiary information, data needed for testing, the tests themselves, governmental reporting, and contribution/distribution information, it’s easy to feel swamped by archived paperwork. Fortunately, 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, plan auditor, 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 disgruntled 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). If you have questions about which documents you must keep and for how long, please contact a Lumin Financial advisor.
ABOUT LUMIN FINANCIAL
Lumin Financial is a fee-only independent Registered Investment Adviser, specializing in 401(k) plans for small- to mid-sized employers. Lumin Financial advisors serve plan sponsors throughout the Midwest with a disciplined approach to managing plan investments, counseling on fiduciary risk matters, and reducing excessive plan fees. In addition to managing investments and risk, Lumin delivers personalized financial education to plan participants. Let them help you plan a clear direction for a bright future.
Lumin Financial, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.