Human-resource professionals are a notoriously organized and efficient bunch. So it’s no surprise that we are often asked, “How long should I keep benefit plan records?” There’s no simple answer, unfortunately, and a record-retention policy needs careful consideration of the rules underlying the policy.
IRS’s Statute of Limitations
The IRS advises that you keep records long enough to respond to an audit. A plan is open to IRS audit, according to Section 6501 of the Internal Revenue Code, for three years after the filing date of the plan’s annual report on Form 5500. The latest deadline for the Form 5500 (i.e., assuming extensions) is 9½ months after the end of the plan year. So for a calendar-year plan, 2016 is open to IRS audit until October 15, 2020.
Relevant records include plan and trust documents, including amendments; determination and approval letters; related annuity contracts and collective bargaining agreements; trust records such as investment statements, balance sheets, and income statements; and participant records such as census data, account balances, contributions and earnings, loan documents and information, compensation data, and participant statements and notices.
ERISA’s Rules
Section 107 of ERISA requires a plan sponsor to retain records necessary to verify the accuracy and completeness of a Form 5500 for six years after its filing date. Relevant records specifically listed by Section 107 include worksheets, receipts, and applicable resolutions. But don’t think that you can trash the files after six years and 9½ months.
Section 209 of ERISA requires an employer to “maintain records with respect to each of his employees sufficient to determine the benefits due or”—here’s the key part—“which may become due to such employees.” If you think that sounds like a long time, you’re not alone. In proposed regulations released in 1980, the DOL interpreted Section 209 as requiring that records be kept “as long as a possibility exists that they might be relevant to a determination of the benefit entitlements of a participant or beneficiary.” But those proposed regulations were never finalized.
So would you be safe if you kept records until the end of the year when a plan’s assets are completely liquidated and for seven years afterward? Alas, no. Imagine that you terminated a 401(k) plan and distributed all of its assets in 2010, then kept records until December 31, 2017. A possibility exists that participants will claim, in 2018 or later, that they never received their distributions. Defending such a claim without records would be a challenge.
What to Do
Some risk is involved in any record-retention policy short of “keep everything forever.” And keeping everything forever—including evidence of mistakes you don’t know about—isn’t a worry-free proposition either. So think carefully about which benefit plan records to keep and for how long.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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