Some plan sponsors may want to confer with counsel about whether they should keep discussion drafts of changes to the plans along with the plan. In some circumstances, versions of the plan that were considered, debated, and rejected or amended may help plan fiduciaries if they are later alleged to have not exercised their duty of prudence or diligence in their consideration of options.
An overwhelming majority of retirement plans changed during the pandemic. As we noted earlier, “75% of retirement plan sponsors have made a change to their plans over the last 2 years.” With those changes to plans now underway, Sponsors may now be asking themselves what to do with past plans. In June of 2022, we detailed the basics of a document retention policy for plan sponsors in an introductory, noting that your company’s basics of document retention might not include documents covered by regulations and regulatory bodies like FINRA. “The SEC requires a 7 year hold for investment advisory documents whereas FINRA and others require a 6 year hold. Potential litigation requires a hold until the litigation, and any appeals thereof, requires an indefinite hold on all documents and their metadata.” A change to a retirement plan adds another wrinkle to the question of document retention. Since we’ve covered the basics plan sponsors may want to consider with counsel and their compliance team about document retention in a post-pandemic world, we can now turn to the special quirks of how to store each past version of the plan.
The Basics, more basic. Sponsors may know the basics of what they need to retain when it comes to plan documents: “As a plan sponsor you should keep the plan and trust document, recent amendments, determination and approval letters, related annuity contracts and collective bargaining agreements.” They may also know that they need to keep these records in readily accessible form – most likely stored in electronic form located on a secure cloud-based system. We detailed the ins and outs, and how to prevent unexpected outs, in our article on ERISA and Enterprise Clouds. There we analyzed new regulations from a DOL advisory group on privacy. We surmised that “it’s clear that the DOL’s fiduciary rules require that a plan provider use technology to work in their client’s best interests.” But, there are strong reasons why having a paper backup of those electronic records could be beneficial. As attorney Allison Cohen put it “…it’s smart to keep a paper copy in place, should a hard drive be destroyed, a USB misplaced or a cloud storage system hacked. All it takes is a soda to spill on a hard drive, a USB to be lost or a hacker steaking personal information for an ERISA malpractice claim to arise.”
Indefinitely is Inappropriate. While some sources may say to keep plan documents “indefinitely” the IRS has somewhat more helpful advice. They say that the length of the plan drives the length of document retention. “You should keep retirement plan records until the trust or IRA has paid all benefits and enough time has passed that the plan won’t be audited.” Some companies may have multiple versions of plans, due to mergers and acquisitions of the original plans, or due to compensation structures and changes in discrimination testing. That may mean that plan sponsors have differing lengths of time to hold onto copies of plans based on how long those plans may run. This type of scenario may call for a document map or audit – a device some project managers use to detail where related documents are and how long to retain them. Since the document map does not reveal personal or confidential information, copies of the document map can be kept in less secure spaces and broadly shared.
Preserve Your Prudence. Keeping copies of the actual plan is essential. Some plan sponsors may want to confer with counsel about whether they should keep discussion drafts of changes to the plans along with the plan. In some circumstances, versions of the plan that were considered, debated, and rejected or amended may help plan fiduciaries if they are later alleged to have not exercised their duty of prudence or diligence in their consideration of options. The possibility of an increased level of scrutiny in plan fiduciaries exercise in diligence is a real one, and one we discussed in our article Hughes Applied and FINRA’s New Alternative Mutual Funds Notice.
https://www.irs.gov/retirement-plans/maintaining-your-retirement-plan-records. Additionally, the IRS notes: “Retirement plans are designed to be long-term programs for participants to accumulate and receive benefits at retirement. As a result, plan records may cover many years of transactions. The Internal Revenue Code, Income Tax Regulations and the Employee Retirement Income Security Act of 1974 (ERISA), as amended, require plan sponsors to keep records of these transactions because they may become material in administering pension law.”
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.get xpress proposal