One of the key elements of sponsoring a qualified retirement plan is the establishment and maintenance of a written plan document. The document serves as the Operator’s Manual for the plan, acting as a guide for the Plan Sponsor and plan participants. The document must be consistent with laws and regulations and it must be operated according to the plan terms. In order to be valid, plan amendments and restatements must be timely signed and dated. If the document is deficient, the Plan Sponsor may face substantial penalties in order to retain a plan’s tax advantage status.
It is important for Plan Sponsors to understand what the plan actually says. Very often, business owners serve as plan trustees and are the decision makers regarding plan provisions. It is important to communicate plan provisions and changes to affected parties such as Human Resources, payroll, and investment advisors as well as informing plan participants by updating employee communications.
Another aspect of plan document maintenance is ensuring that the plan is updated for tax laws. When these updates are required, Paragon will inform you of any action needed to keep your plan in compliance along with the deadlines for adopting these updates.
Plan document maintenance can be complicated. It is important for Plan Sponsors to have internal controls in place to ensure ongoing compliance. A written process should be developed to evaluate the impact of changes on plan operations and ensure that the necessary parties are advised and monitored. An important resource in helping to understand your plan documents is your Paragon consultant. Please do not hesitate to contact us with questions.
A common question we receive is “how long do I need to maintain plan records?” The vast majority of retirement plans are covered under a federal tax and labor law known as ERISA. ERISA, with some similar guidance in the Internal Revenue Code, outlines the different requirements for records retention.
The following items should be retained as long as the plan is in existence:
1. All plan documents and related policies, signed and dated, and Basic Plan documents, if applicable
2. All Summary Plan Descriptions and any updates
3. All signed and dated plan amendments, both client initiated and legislative
4. All determination or opinion/approval letters
5. All support for participant, beneficiary, or alternate payee entitlement to benefits
The following items, related to plan level reporting and disclosure, should be retained for a t l e a s t 6 years following the due date of the annual 5500:
1. Participant election forms and support for deferrals
2. Distributions and loans (minimum of 6 years after participant’s complete withdrawal from plan– in recent years, clients have been asked to provide proof of distribution for payouts as many as 20 year earlier for Social Security Administration disputes, so we suggest retaining evidence of such for the plan’s lifetime)
3. Census data
4. Non-discrimination testing results
5. Completed 5500 forms
6. Plan financial statements
7. Investment reports and certification of investments from the custodian (if applicable).
8. An additional consideration is to maintain copies of reports from third-party providers since investment providers are more likely to archive information after a short period of time, making easy access to those records difficult, especially if you have changed providers
Electronic records are a convenient way of satisfying record retention requirements. Records can be maintained in this manner as longer as they (1) can be easily converted to hardcopy, if necessary, (2) are maintained in an organized manner and in a safe and accessible place, (3) have reasonable controls to ensure the “integrity, accuracy, authenticity and reliability of the records,” and (4) have an electronic records policy.
Please do not hesitate to contact your Paragon consultant with any questions. We are happy to assist you in navigating through the various documents that comprise your plan.