How Long Should You Maintain Plan Records? It Might Be Longer Than You Think

By David J. Kupstas, FSA, EA, MSEA

David J. Kupstas, FSA, EA, MSEA

David J. Kupstas, FSA, EA, MSEA Chief Actuary

Late in 2014, the IRS posted an article on its website about how long retirement plan records should be kept.  With eager anticipation, I clicked on the article and found that it said…not much.

When it comes to individual and company tax records, the guidelines are fairly clear as to how long records should be kept.  You should hang on to Tax Return A for three years, Document B for seven years, and so on.  When people ask us how long retirement plan records should be kept, they are looking for a similar simple and concise answer.  Is it three years?  Six?  Seven?  Ten?  Unfortunately, the answer is not that straightforward.

Under ERISA, records used in preparing Form 5500 should be kept for six years after the 5500 is filed.  That seems manageable.  Although the list of what needs to be kept is rather expansive – trust statements, distribution records, compliance testing, and payroll information, among other things – at least it can all be tossed after six years.  Your storage room won’t get too full, right?

Not so fast.  Another section of ERISA requires employers to retain the records needed to determine employees’ plan benefits, well, forever.  It doesn’t say exactly that, but when you think about all the times you might need the records, when would you ever throw them out?

  • If an employee has yet to receive benefits from the plan, you will want that employee’s records from day one so that you may compute or verify what will be paid in the future.
  • If an employee has been paid out or has started benefits in the last few years, you could need his records from day one in case of an audit.
  • Even if an employee was paid out or started benefits a long time ago, you will want the records in case of a lawsuit or erroneous claim.

That third bullet point is what might give some of you heartburn.  Is this saying that records need to be kept for an employee who was paid out or started benefits 10 or 20 years ago?  I’m afraid so.  A 2013 court case punished an employer $10 a day when it could not locate a plan document from 1979 – more than three decades earlier.  Also, our clients have in recent years contacted us about employees from as far back as the 1970s claiming they are owed benefits.  These individuals likely received a notice from the Social Security Administration indicating they may have benefits due from our client.  Both we and the plan sponsor were quite confident the people were not owed any benefits.  Proving it was the hard part.  Supporting records weren’t readily available; if they had been, the plan sponsor would not have contacted us in the first place.

You might be thinking, “No problem.  My third party administrator will have all that,” or “My broker will have what I need.”  Don’t bet the farm.  First, there are certain records we are never given.  We are never given time cards and other underlying employee records, for instance.  We don’t need them to do our job.  Second, brokers, TPAs, recordkeepers, and actuaries can change over the years.  Some get replaced by other service providers, some go out of business, some are merged with other firms.  How likely is it that you will be able to get information from the recordkeeper from 1989 when there have been three other firms providing that service since then?  Not very.  Many firms state in their service agreements that they will keep plan records for, say, six years after the service contract ends.  If by some miracle the records are available, there will probably be a fee to retrieve the information from storage.

Are we suggesting that plan records be kept forever?  Yes, we are.  And it is the plan sponsor that is responsible for keeping these records.  Not the actuary, not the TPA, not the CPA or broker.  We know this is a lot of paper.  Fortunately, scanning the papers and storing them electronically has never been easier or cheaper.  While some of the records should be kept because it is required, others should be kept as a good practice that will save headaches or fees down the road.  Our experience has shown that having a full arsenal of historical records when needed is worth the upfront investment of time.  We will be happy to help you sort through the requirements and determine how best to maintain your plan records.

— Topics: 401(k), Retirement