Today, many records relating to employee benefits reside with vendors administering those benefit plans (including forms mandated by statute and regulations, participant phone call center recordings and notes, benefit elections, benefit calculations, compensation data, and other historical data). Employers are sometimes surprised that their vendors (or former vendors) are not able to produce records they need to respond to a participant or government audit/inquiry or that those records and forms are insufficient to meet compliance standards. The following steps can lessen the risk in this happening to your company:
- Check your vendor agreement. Confirm your rights to your retirement plan data. Make sure you have full access to call center recordings, as the actual transcript of a participant call may vary in important ways from the call summary the vendor provides to you.
- Audit your vendor’s procedures, forms, and retention of administrative documents. The government will hold your company, not the vendor, liable for failing to comply with the terms of your plan documents or failing to be able to produce proper documentation supporting various plan transactions. In particular, the IRS has identified issues with the manner in which some vendors document hardship distributions. You should periodically obtain copies of the forms, records and procedures your vendor uses to administer your plan to confirm compliance. You may wish to take this step soon after changing vendors so that you catch errors early, which will save your company both time and money.
- Protect your historical plan data on vendor conversion. While a vendor may agree to retain your data for a period of time, it is more difficult to get timely data retrieval from them when you are a former client, and should they experience a system change, your data may not be available. Thus, relying on a vendor to comply with its contractual obligations for an extended period of time is not the best practice. In particular, for defined benefit plans, make sure that you have access to all benefit calculations performed by the vendor.
- Protect your payroll data. This is a crucial step when any payroll system change occurs. You may need to access information regarding compensation and hours worked from the point a participant entered the plan (yes, that includes time worked over 35 years ago). Therefore, you should consider supplementing electronic records with images that your company will be able to access in the future regardless of technology and system changes.
- Retain Executed Copies of Retirement Plan Documents Until Plan is Terminated and Beyond. You should retain executed copies of all retirement plan documentation (including determination letters and the determination letter applications) until at least 7 years after the plan has been terminated and all benefits have been distributed. If you are on a prototype document, make sure you have a full copy of the base plan document that accompanies the adoption agreement, as well as the opinion letter on the prototype plan. Prototype sponsors are not always able to provide the base document years later, especially when the prototype sponsor has been subject to a merger and acquisition. Most vendors do not take responsibility for keeping copies of your executed retirement plan documents.