From time to time employers ask us how long they need to retain records relating to their ERISA plans. Though the question is most frequently asked with respect to retirement plans, it applies equally to health and other welfare benefit plans. The rules under ERISA that govern the retention of records haven’t changed in years, and neither has our answer. But a case of first impression recently decided by the First Circuit Court of Appeals brings the question into sharp focus and provides a nice opportunity for us to share our thoughts on the matter.
Two provisions of ERISA speak directly to the retention of records relating to employee benefit plans. Regarding reporting and disclosure requirements, Section 107 of ERISA 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 after the filing date. The records to be maintained would vary depending upon the type of plan involved, but generally would include worksheets and other supporting data or documentation, committee minutes, board resolutions, and other information used to prepare the filings or disclosures.
Section 209 of ERISA, however, contains a much broader and open ended recordkeeping requirement regarding benefit plans in general. 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.” DOL Proposed Regulations Section 2530.209-2(d) emphasizes just how open ended the requirement is, stating that records must be maintained for “as long as they may be relevant to a determination of benefit entitlements.” To provide some relief to employers seeking an end point to their recordkeeping obligations, the proposed regulation helpfully provides 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 for a longer period under any other law.” (By the way, since the correction of retirement plan operational failures under EPCRS must be made for all years, not just years open to IRS audit, this records retention rule will support future correction activity.)
The requirements of Section 209 of ERISA were at the issue in the case of Central Pension Fund of Int’l Union of Operating Engineers v. Ray Haluch Gravel Co. (1st Cir., No. 11-1944, 9/12/12). The Haluch Gravel case arose from a dispute between a union and an employer contributing to several multiemployer employee benefit plans under a series of collective bargaining agreements. The union claimed that the employer owed additional contributions on account of previously unreported work by its members. The union had won a modest damage award with respect to work performed by a single, specified employee. However, the union did not obtain the much larger damages it sought with respect to a greater amount of work performed by other unspecified employees, so it appealed the decision of the District Court. Upon review of the record, the First Circuit found evidence indicating “quite clearly” that one or more other employees performed work for the employer during the period in question, but that the employer had not provided records sufficient to determine the amount of work or the resulting contributions. The question, then, became who has the burden of producing the necessary records or otherwise proving the amount of work done or not done.
As everyone knows, the plaintiff in a case has the obligation to prove its case against the defendant. Put another way, the “burden of proof” is on the plaintiff. However, after affirming that Section 209 of ERISA clearly required the employer to maintain records sufficient to determine the benefits to which its employees might become entitled, the First Circuit found that the evidence that some work had been done combined with the lack of sufficient records justified shifting the burden to the employer to prove that it was NOT obligated to make contributions for all hours that potentially constituted work covered by the plan. That’s right, the defendant employer had to show that it did not owe additional contributions to the multiemployer plan. The Court did suggest that this burden-shifting concept might not apply in every case. But the Haluch Gravel case still offers a breathtaking example of the perils of failing to maintain adequate plan records consistent with the requirements of Section 209 of ERISA.
So what do we recommend in the way of records retention? Employers should do what they can to sort their records into two categories: reporting and disclosure records, and benefits determination records. Without getting into the details of the records retention policies that we have crafted for clients, or attempting to provide an exhaustive list (remember, this is not legal advice), we would offer the following general lists of pertinent records:
- Reporting and disclosure records (which are subject to the 6-year retention requirement of ERISA Section 107) would include: all of the forms filed with government agencies with respect to the plan, starting with Form 5500 (including all required schedules and attachments); actuarial statements and valuations; determination letter applications and similar filings (on the Form 5300 series); IRS determination letters; summary plan descriptions and summaries of material modifications; and participant benefits statements.
- Benefits determination records (which are subject to the open-ended retention requirement of ERISA Section 209) would include: age and service records that are used to determine waiting periods, eligibility, vesting, breaks in service, and benefits; payroll records; marital status records; beneficiary designations; participant account records and actuarial accrued benefit analyses; plan documents and amendments; benefit claim procedures and procedures for reviewing denied claims; trust documents, custodial agreements, group annuity contracts and other funding instruments; and plan notices, election forms, and distribution forms (including COBRA notices, HIPAA certificates of creditable coverage, the written explanation of the joint and survivor annuity option, notice of taxation, distribution election forms, etc.).
One final thought. Don’t let the applicable statute of limitations for ERISA claims affect your thinking about records retention practices. First, ERISA does not prescribe a statute of limitations for benefit claims. When dealing with such claims, federal courts will generally apply the state statute of limitations that seems applicable – for example, the statute of limitations for breach of contract. Second, the 6-year (or 3-year, in the case where the plaintiff had actual knowledge) statute of limitation under Section 413 of ERISA applies only to claims alleging breaches of fiduciary duty, prohibited transactions, and other claims under Part 4 of Title I. So while the records retention requirement under Section 107 aligns nicely with the statute of limitations under Section 413, the open-ended requirements of Section 209 go well beyond this limitation period.
Many thanks to Karen Hartford for her assistance on this post.