Your 401(k) Paper Trail: What to Keep and for How Long

If the Department of Labor called you tomorrow about your company 401(k), would you be able to find the proper paperwork? Most 401(k) plan sponsors have filing cabinets (or digital folders) full of plan documents, notices, testing files and participant records. But knowing where the documents are is only half the battle. Knowing what you need to keep, and for how long, can be the difference between a smooth compliance review and a stressful scramble through years of records.

When it comes to 401(k) document retention, “keep everything” may sound like the safest approach. Having a clear retention strategy and knowing what to keep, can assist plan sponsors to stay organized, protect the important stuff, and be prepared when questions about the plan arise.

Proper document retention is an essential part of administering a 401(k) plan. Maintaining complete and organized records helps demonstrate compliance with the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, and Department of Labor (DOL) requirements. Good recordkeeping also makes audits, participant inquiries and regulatory reviews much more streamlined.

In general, plan sponsors should retain records that support the information reported on required filings and document all plan operations. Key records include:

• Plan documents and all amendments (including regulatory amendments)
• Adoption agreements and trust agreements
• Summary Plan Descriptions (SPDs) and participant notices
• Board resolutions and committee meeting minutes
• Service provider agreements
• Form 5500 filings and supporting schedules
• Payroll records used to calculate contributions
• Employee eligibility and enrollment records
• Contribution, distribution, and loan records
• Investment and fiduciary committee documentation
• Nondiscrimination testing and compliance reports
• Audit reports and correspondence with regulators

How Long Should Records Be Kept?

ERISA generally requires records supporting information reported on Form 5500 to be retained for at least six years after the filing date. However, many retirement plan records should be kept much longer, if not indefinitely.

Since participant benefits may be questioned many years after employment ends, records that establish a participant’s entitlement to benefits such as payroll records, contribution histories, beneficiary designations, and distribution records should be retained for the life of the plan. The DOL emphasizes that records needed to determine participants’ accrued benefits should not be destroyed simply because the six-year retention period has passed.

Other items that should be kept indefinitely would include any correspondence with regulators, service provider agreements, plan documents/adoption agreements, and any board resolutions and trust agreements. If a plan sponsor is under audit by the IRS or DOL, these items are crucial to have on file to ensure compliance with required document restatements and maintaining qualified status of the plan. Failure to provide required plan document restatements during a DOL or IRS audit can lead to severe financial and legal consequences, including the loss of the tax-qualified status of the Plan. If a plan restatement is missed, the IRS may treat it as a document failure. However, there are ways to rectify this issue if needed using the corrective procedures outlined by the IRS. If a missed restatement is found within three years of the deadline, the IRS allows the sponsor to utilize the Self-Correction Program (SCP) to avoid paying any fees. If found after the three year deadline, a sponsor may use the Voluntary Correction Program (VCP) application which a user fee is required.

Best Practices

An established document retention policy includes both electronic and paper records, secure storage, regular backups, and practices for protecting confidential participant information. Plan sponsors should also work with their recordkeeper, third-party administrator, and legal counsel to ensure retention practices comply with applicable federal requirements and any relevant state laws. With an upcoming 401(k) plan restatement period upon us, now is a good time to review your documents and ensure you have the appropriate documentation on file.

By maintaining comprehensive records for the appropriate length of time, plan sponsors reduce compliance risk, support accurate benefit administration, and are better prepared to respond to audits and participant requests. Greenleaf Trust understands the importance of document retention for our Plan Sponsors and ensures we maintain proper documentation to support regulatory compliance and plan governance.