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Why Retirement Plans Need Record Retention Policies – Part 1 of 2

cabinet-detail-and-colorf-16824455Here’s a scenario: Jane applies for Social Security benefits and remembers that she has a retirement plan benefit payable from a former employer. When Jane goes to the former company to request benefits, the proof of benefit isn’t there. Jane is within her rights to sue her former employer for duplicative benefits since there is no proof of distribution.

Record retention doesn’t just protect you from legal action, it’s required. ERISA requires employers to maintain plan records for each employee to determine benefits due. The IRS states that records must be kept until all benefits have been paid, the trust is dissolved and sufficient time passed so that the plan is no longer subject to audit.

Even with an outsourced administration of the plan, the plan sponsor remains responsible as the fiduciary of the plan. The plan sponsor must keep track of the records held by the service provider and make sure that the records are returned in a usable format if there is a change in service provider. Records to retain include legacy records – the historical report, so that verification of employment and transactions remains available. Such records may be digitized for environmentally-safe keeping.

Your company may already have a records retention policy. If so, make sure that it addresses employee benefits. Next, would you be able to find the records you need if asked by a former employee or in an audit? And, take time to review your arrangement with your third party administrator to determine availability of records and records format and distribution if or when the contract expires. You’ll also need a plan to keep the records available in a current state of technology so that they’re accessible. Records kept on a floppy disk in the early ‘90s wouldn’t be of much use today.

In the next post, I’ll include information about what records to keep for both the plan and the participants.  If you would like to speak with me, Dalton Cox, about your retirement plan, you may call me at 972.739.1269.

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