Are you depending on your third-party administrator (TPA) to keep signed copies of plan documents and amendments? While most TPAs keep copies of documents they prepared, they do not always, in our experience, keep copies of signed versions, or older documents, or documents prepared by a prior TPA. It is important to understand what the scope of the document retention being contracted for with the TPA and also to understand who is ultimately responsible for this under ERISA.
What is Required by the Service Contract?
TPAs are responsible for the client plan’s document compliance from the point at which they are engaged to the point at which they cease to be engaged. This means drafting required restatements approximately every 6 years, required interim amendments, and discretionary amendments that the Plan Sponsor chooses to make to the plan’s design. Note that it says “drafting” not obtaining signed copies or retaining copies, signed or not. In addition, if the plan was originally established with a prior TPA, hopefully the new TPA will ask for all prior plan documents, but they may only ask for the current set of documents for purposes of restating the plan on their form of document. The new TPA may or may not retain any of these older documents, and the former TPA has no incentive to retain older documents or to provide them on request. To the contrary, it is in their interest to purge their files to lighten their system and not have their representatives spending time on former clients. Service contracts will either be silent on the issue of document retention, or provide that the contracted document retention only applies while the TPA is engaged to provide services to the plan.
Who is Ultimately Responsible for Document Retention?
It is the ultimate responsibility of the Plan Sponsor and Plan Administrator (both of which are usually the employer, so to simplify will be referenced here as the “Employer”) to retain signed copies of all plan documents for the life of the plan. Like many responsibilities for the plan, document retention can be delegated and contracted for, but the Employer remains responsible for monitoring and overseeing those to whom the task is assigned to, and any failures by the delegates or contracted third-parties will generally not absolve the Employer of the responsibility for any corrections, penalties, or other ramifications.
Who Cares?
The Employer needs to care very much. If the IRS or DOL comes in and initiates an audit/examination, the government can ask to see documents all the way back to the beginning of the plan. They will be looking to make sure that all required restatements and amendments were adopted timely; that all discretionary changes to the plan were accomplished by a written amendment that was adopted by the end of the plan year in which it was effective, or earlier if it would otherwise result in a cutback of an accrued benefit. The IRS and DOL generally only accept a signed and dated document as proof that it was timely adopted. If one cannot be produced, then the presumption is that it was never adopted. This can result in many things—disqualifying failures to the plan requiring corrective action such as retroactive adoption of old plan documents, ineffective plan changes resulting in corrective contributions, extended searches for supporting extrinsic documents such as board resolutions or minutes—all of which can be expensive and will definitely be headache-inducing.
Besides concerns about demonstrating document compliance, document retention is vital because it is also important to be able to determine the terms of the plan at any point in its history. Benefit claims, including law suits, can come up years later, and the terms of the plan as provided in the plan document in effect at the time of the claim, will govern, and often overrule any contrary statements or impressions the former employee or beneficiary received.
What are Best Practices?
The best practice is clearly for the Employer to retain copies of all plan documents—signed adoption agreements, applicable base plan documents, required interim amendments, discretionary amendments, and even summary plan descriptions and employee handbooks—for the life of the plan plus the statute of limitations thereafter (generally 6 years, although it varies by issue and sometimes by state). In addition, the Employer should be aware of the document retention provisions of its services agreements, and possibly negotiate for the TPA to agree to retain or send all documents to a successor TPA as a back up method. It is also a good idea to ensure your benefits counsel has a full set of documents in its files so that they can assist with corrections and help defend during a plan audit/examination or benefit claim controversy/law suit. These days, document retention is only a few megabytes on a server, so there is no excuse not to keep copies of everything in an accessible and secure manner.