Retirement Plan Records and the Forever Rule
A former employee attains age 65 and applies for a retirement pension. That’s normally a routine situation for any plan administrator. But what if the employee stopped rendering covered service 24 years ago and the plan administrator has no records of the employee or his employment because he worked for a separate company that was acquired 14 years ago? Can the plan deny the benefit claim because it has no records relating to either the prior employer’s plan participation or the employee? Or, does the employee have a valid claim because he has W-2s and paystubs showing that he was employed by the separate company for at least a portion of his claimed tenure?
When both parties have insufficient records, who loses because they have the burden of proof?
At least one court has considered this situation and concluded that the employee does not have the burden of proof for “matters within the defendant’s control.” So, if the employee asserts a prima facie case that he is owed a benefit, the burden of proof shifts to the plan. This is especially the case where it would be “unreasonable” for the employee to prove his actual hours worked over each of his 20 years of employment during the 60s, 70s, and 80s. The matter was remanded to the trial court for disposition in accordance with these principles by the 9th Circuit Court of Appeals in Estate of Barton v. ADT Security Services Pension Plan (2016).
It is worth noting that ERISA imposes specific record retention requirements on retirement plans and their administrators. As set out in proposed Department of Labor regulations, participant benefit records must be retained
"…as long as a possibility exists that they might be relevant to a determination of the benefit entitlements of a participant or beneficiary."
As the IRS explains: “You should keep retirement plan records until the trust…has paid all benefits and enough time has passed that the plan won’t be audited.” In plan terms, that means forever – actually forever plus the audit period!
Less restrictive rules apply to retirement plan records that do not relate to the determination of benefit entitlements such as records used to prepare annual reports on IRS Form 5500, which must be retained for six years after the date of filing.
Retirement plan retention requirements are pretty clear. The retention lapses that do occur both in the Estate of Barton case and in our experience usually result from business acquisitions where the acquiring business either does not receive or fails to retain the “forever” records of the acquired entity. So, any due diligence checklist in a business acquisition should contain a detailed inquiry about the target’s “forever” records. And yes, you can retain your own forever records electronically in accordance with applicable Department of Labor regulations.