IRS Retirement plan recordkeeping requirement update

From HR BEnefits Alert- December 23, 2014

HR pros everywhere will want to take note of what the feds said regarding their retirement plan records.

That’s because the Internal Revenue Service (IRS) just updated a Web page on the agency’s site titled “Maintaining Your Retirement Plan Records.”

On top of the fact that retirement plan sponsors are required to keep certain records and have those records available to the feds for review, the IRS says good recordkeeping can also help employers when it comes to determining employees’ benefits.

What to keep …

The updated IRS page is meant to be a reminder to employers (as plan sponsors) that they should be keeping documents like the plan and trust document, recent plan amendments, determination and approval letters, as well as related annuity contracts and collective bargaining agreements.

Certain records that employers are required to keep are based on plan type.

Some examples: 401(k), defined-benefit or profit-sharing plans must retain plan documents, any plan amendments and an adoption agreement if one exists. SIMPLE IRA plans are required to keep Form 5304-SIMPLE or Form 5305-SIMPLE as the plan document.

In addition, the feds say all plan sponsors should keep trust records that include documents like:

  • investment statements
  • balance sheets, and
  • income statements.

This also includes records such as:

  • census data
  • account balances
  • contributions and earnings
  • loan documents and information
  • compensation data and participant statements, and
  • notices.

… For how long?

As HR pros know, any 401(k) or other retirement plan records should be retained indefinitely.

Specifically, the IRS says retirement plan records must be kept until the trust (i.e., plan) or IRA has paid all benefits and enough time has elapsed that “the plan will not be audited.” The agency also makes it a point to note that retirement plans are set up to be long-term ways for participants to accumulate and receive benefits at retirement. So that’s a big part of why these records must be retained indefinitely.

Also, under both the Internal Revenue Code and Income Tax Regulations and the Employee Retirement Income Security Act (ERISA), plans must keep records of retirement plan transactions because they “may become material in administering pension law.”

And, as Plansponsor’s Rebecca Moore points out, employment attorneys are seeing an increase in claims for pension benefits that were paid or rolled over decades ago by former workers who:

  • either don’t recall receiving or rolling over their benefits, or
  • who are questioning the amount of benefits they received.

Additional recordkeeping rules

On top of retirement records, here are some additional recordkeeping best practices HR pros should abide by:

Generally, employers should retain employees’ personnel files for a minimum of two years. Benefits pros should be sure these files include:

  • Performance reviews, employee layoffs or transfers
  • Healthcare plan packets (not including completed enrollment, COBRA or FMLA forms), and
  • Any professional training benefits you offered.

Three-year files

Under the FLSA, employers are required to keep the following records for at least three years:

  • Employee time cards and wage-rate calculation formulas, as well as written descriptions explaining pay differences for workers who perform the same job, and
  • I-9 forms. (Note: These should be kept for three years, starting from the employee’s hire date or for one year after termination – whichever is later.)

Four years from the creation

These records need to be retained for four years – starting on the date they were created:

  • Records of employees’ home addresses, and
  • All personalized pay files (this includes workers’ weekly OT wages, any deductions, bonuses, straight time pay and pay period designations, and payment dates).

A five-year retention schedule

There are certain documents employers need to keep on five-year retention schedules. These files are:

  • Employees’ drug or alcohol test results, and
  • Medical and first-aid records stemming from on-the-job injuries and disability-related assignments (e.g., light duty or return-to-work).

Six years and longer

Unless your company terminates the plan, the following records need to be kept for six years:

  • COBRA notices
  • Enrollment and election forms, and
  • Benefit change records.

Employers still usually need to hang on to employee files for one year after a benefits plan has been terminated.