Record Retention Best Practices for Employee Benefit Plans FINAL ...

Record Retention Best Practices for Employee Benefit Plans:

How Much and How Long?

October 27, 2022

Eric D. Altholz ealtholz@verrill-

Anna V. Mikhaylina amikhalina@verrill-

10/26/2022

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Overview and Goals

? Offer guidance for developing prudent record retention policies that will support compliance with ERISA and mitigate risks that can result from inadequate benefit plan records.

? The presentation will cover:

o statutory and regulatory requirements o select cases involving record retention issues o recently announced IRS pre-audit pilot program o recommendations and best practices for record retention

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ERISA ? Origins and Purpose

? Congress enacted the Employee Retirement Income Security Act in 1974, to provide rights, remedies, and protections to benefit plan participants and beneficiaries. ERISA was passed in response to several high-profile failures to pay benefits and other corporate misdeeds involving benefit plans.

? ERISA includes four broad categories of legal requirements: o Reporting and disclosure requirements o Participation and vesting requirements for retirement plans o Funding requirements for pension plans o Fiduciary duties and responsibilities

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ERISA prescribes record retention requirements for employee benefit plans

? For all types of benefit plans: ERISA Section 107 states that all records pertaining to agency filings or to participant or beneficiary disclosures must be retained and kept available for examination for at least six years.

? For retirement plans: ERISA Section 209 states that an employer must "maintain benefit records with respect to each of [its] employees sufficient to determine the benefits due or which may become due to such employees."

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Section 107 Enforcement and Other Considerations

? No statutory penalties associated with the record retention requirement under ERISA Section 107, but . . .

o a plan participant may have a claim if rights are impaired due to lack of records;

o absence of records can weaken employer's defense; and

o prudent recordkeeping can be considered a fiduciary obligation

? One federal District Court held that an employee who was seeking reinstatement of long-term disability benefits was excused from exhausting administrative remedies prior to filing suit, because the employer had destroyed her claim records, thus making an appeal under the plan's procedures futile. Medoy v. Warnaco Employees' Long Term Disability Plan (E.D.N.Y. 1999).

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Records to be retained for at least six years

? Annual Reports (Form 5500)* ? Actuarial statements and valuations ? Determination letter applications and similar filings ? IRS determination letters ? SPDs and SMMs ? Participant benefit statements ? Other notices and disclosures? ? Claims related records (recommended)

* Form 5500 returns filed since January 1, 2010, can be found on .

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Open Ended Requirement under Section 209

? Under ERISA Section 209, an employer must "maintain benefit records with respect to each of [its] employees sufficient to determine the benefits due or which may become due to such employees."

? DOL Proposed Regulation ? 2530.209-2(d) emphasizes the openended nature of the requirement: records must be maintained for "as long as they may be relevant to a determination of benefit entitlements."

? Proposed Regulation allows that "[w]hen it is no longer possible that records might be relevant to a determination of benefit entitlements, the records may be disposed of, unless they are required to be maintained . . . under any other law."

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When are records considered "sufficient"?

? Under Proposed Regulations ? 2530.209-2(c), records required to be maintained by a single employer plan will be deemed sufficient if, include all records maintained by the employer for the purpose of determining employee's benefit entitlements under the provisions of the plan.*

? Think about the information necessary to determine: o plan eligibility (including expiration of waiting periods) o vesting and breaks in service o contributions and benefit accruals/calculate benefits o forms of benefit payment (e.g., lump sum or annuities) o marital status and beneficiaries

* Regulations are still in proposed form. Certain cut off dates may apply.

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