401(k) Document Retention Rules Made Simple

Did you know that employers are required to retain detailed 401(k) documents, including testing results, transactions, and employee activity, for at least six years under the Employee Retirement Income Security Act of 1974 (ERISA)? If you're unaware, you're not alone. However, understanding and complying with these rules is crucial to avoid potential issues.

While the civil penalties for not retaining required 401(k) plan records are minor, missing records can significantly hinder an employer’s ability to defend plan operations or the accuracy of plan benefits if challenged by the IRS, DOL, or plan participants.

Below are some of the most common 401(k) plan records that must be retained to meet ERISA standards. I recommend employers use three files to organize this information: a file for the plan’s governing documents (a “Plan Document File”), a file for participant records (a “Participant File”), and a file for annual information (a “Annual File”). This simple file system should make accessing plan records easy if they are ever needed.

401(k) Document Retention Requirements

ERISA requires employers to retain certain documents and records in order to meet their fiduciary responsibilities. These requirements apply to both plan level and individual participant records. 

Section 107 of ERISA describes the retention requirements for records used to support plan filings. These records must be kept for at least six years after the filing date. Examples include:

• • The Form 5500 (including all required schedules and attachments)
  • Nondiscrimination testing
  • Participant notices
  • Financial reports and supporting documentation
  • Evidence of plan’s fidelity bond
  • Corporate tax returns (to reconcile deductions)

Section 209 of ERISA describes the retention requirements for records used to determine participant benefits. These records must be kept “as long as a possibility exists that they might be relevant to determining the benefit entitlements of a participant or beneficiary,” which can mean indefinitely. Examples include:

• • Plan documents, and items related to the plan document
  • Records that determined employee eligibility, vesting, and benefits
• Support and documentation for participant loans and distributions
• Board or administrative committee minutes and resolutions

Plan Document File

This file is for records that govern the plan’s day-to-day operations. Superseded records should be archived for historical reference. Items to keep in the file include:

• • Plan Documents – adoption agreement, base document, IRS advisory letter, amendments, QDRO policy, and loan policy (if loans are allowed)
  • Summary Plan Description (SPD) – including any Summary of Material Modifications (SMMs) related to the SPD
  • Corporate Actions – resolutions, agendas, minutes, and documents distributed at meetings  
  • Service Agreements – Contracts that outline the services and fees of plan service providers
  • 408b-2 Fee Disclosure – Information a Covered Service Provider (CSP) must provide to employers for their fees to be considered “reasonable.”
  • Fidelity Bond – ERISA Section 412(a) requires every fiduciary of an employee benefit plan and every person who handles funds or other plan property be bonded.                  

Participant File

This file is for records that document participant direction and distributions. Items to keep in this file include:

• • Payroll Records
  • Participant Deferral Election Forms
  • Investment Election Change Forms
  • Beneficiary Designation Forms
  • Distribution Request Forms (including any supporting documentation)
  • Loan Request Forms
  • Rollover Requests
  • QDRO Split Requests (with supporting documentation)

Annual File

This file is for records related to a plan year. A file should exist for each year the plan has been in existence. Items to keep in this file include:

• • Plan Valuation – Contains participant-level information for the year, including contribution, distribution and fee activity. If received quarterly, file all four quarters.
  • Trust Statement – Contains trust-level information for the plan year, including all purchases and sales that occurred in the trust account. If received quarterly, file all four quarters.
  • Nondiscrimination Testing – 401(k) plans must satisfy various nondiscrimination and limit tests annually. Most common tests include:
    • Coverage (IRC Section 410(b)) testing
    • ADP/ACP testing (non-safe harbor 401(k) plans only)
    • Excess Deferral (IRC Section 402(g)) testing
    • Annual Addition (IRC Section 415(c)) testing
    • Top Heavy (IRC Section 416) testing
    • General (IRC Section 401(a)(4)) testing (required for “new comparability” profit sharing allocations)
  • Participant Notices – Any notice distributed to participants during the year, including (as applicable):
    • • Participant (ERISA 404a-5) fee notice
      • Safe harbor 401(k) notice
      • Qualified Default Investment Alternative (QDIA) notice
      • Automatic enrollment notice               
    • Form 5500 – including all required schedules and attachments.
    • Independent Audit Report – If required to be filed with Form 5500.
    • Summary Annual Report – Summary of Form 5500 provided to participants.    

Staying Out of Trouble is Easy!

A 401(k) plan, by its nature, generates large amounts of documentation and preserving much of it is required by ERSIA. Developing a filing system can make it easy for 401(k) sponsors to review, update, preserve, and dispose of documents.

These systems do not need to be complex. A simple system with three file types can do the trick. Ready access to plan documentation can mean the difference between a quick, cost-free settlement to a 401(k) dispute or a drawn-out, costly battle.