Provider Changes Can Pose Records Retention Issues

Retirement plan advisers should help clients understand their rights and ability to access past records after a change in recordkeeper or TPA.

Picture this: A participant in the defined contribution (DC) retirement plan your client offers comes to work tomorrow and says he made an investment change during a call to the plan call center five years ago, which was never implemented. But, the plan has changed recordkeepers (and thereby, call centers) since then.

Imagine that a former participant in a client’s defined benefit (DB) plan is questioning the amount of benefits paid to him a decade ago, or the Internal Revenue Service (IRS) has just notified you that it will be auditing a client’s DC plan for the 2012 plan year, but the sponsor changed recordkeepers in 2013.

Does the prior recordkeeper have the call center recordings or notes from five years ago? Do you have access to those recordings or to DB plan benefit calculations? Will the prior recordkeeper respond quickly to data requests to verify a participant’s claim or to provide information needed for the IRS audit now that you are no longer a client, and no longer pay them?

Nancy C. Brower, an attorney at Poyner Spruill LLP in Charlotte, North Carolina, says plan sponsors need to remember that the rules and regulations for having adequate plan documentation applies to them. “I think so often plan sponsors think the responsibility should be on the vendor, but the government is going to rely on the plan sponsor to show that the plan has been operated in accordance with the plan document and regulations,” she tells PLANADVISER. “The plan sponsor may get a little sympathy, but it won’t get a pass if it finds the prior recordkeeper doesn’t have the information requested.”

Plan sponsors should check their vendor agreements with their recordkeeper or third-party administrator (TPA) to understand their rights to access records, Brower suggests. She says the most natural time to do that is when first starting a relationship. “I find many [plan sponsors] do a cursory scan of vendor agreements and don’t understand their rights,” she says.

NEXT: What records to recordkeepers keep and for how long?

Gary Stamborski, vice president of operations responsible for new business conversions and deconversions at MassMutual in Enfield, Connecticut, says top plan providers send very detailed reporting and historical information to new providers so a conversion to a new recordkeeper will run seamlessly.

He tells PLANADVISER that MassMutual’s record retention policy requires that all records be kept for seven years after a deconversion; however, it never purges its recordkeeping system, so it can accommodate requests for information farther back than seven years.

“At MassMutual, we keep call center recordings, never delete them,” Stamborski adds. “Ancient history is hard to find, but not impossible.” He also says MassMutual keeps actual paper forms submitted by plan participants, and will provide them in case an audit is performed or questions arise.

Although he believes these practices are a given for most providers, he suggests plan sponsors ask their recordkeepers and TPAs about records retention policies and whether they will be able to support a plan sponsor if a participant asks for clarity about something over time. Upon a provider change, plan sponsors should make sure the prior provider will provide support in case of an audit.

Brower says access to prior records can be a problem for plan sponsors and recordkeepers of all sizes. For larger plans with big-name recordkeepers, there is so much more data and dollars at stake, it benefits plan sponsors to do their due diligence, she says. And, she notes, smaller plans may have fewer issues because there are fewer transactions.

Stamborski suggests plan sponsors themselves maintain all plan level information, such as documents and copies of Form 5500s. Brower adds that this includes executed copies of all retirement plan documentation, including determination letters and the determination letter applications, until at least seven years after a plan has been terminated and all benefits have been distributed. If plan sponsors use a prototype plan document, they should make sure they have a full copy of the base plan document that accompanies the adoption agreement, as well as the opinion letter on the prototype plan.

According to Brower, plan sponsors also need to make sure they are keeping reconciliations between their payroll department or vendors and recordkeepers or TPAs with respect to compensation and deferrals and understand any differences. They should do a special reconciliation when leaving a vendor.

NEXT: Tips for maintaining adequate records

According to Brower, all vendors have an administrative set up manual—a set of administrative rules they program into their systems. Plan sponsors should get a copy of the manual and, along with legal counsel, review it against the plan document to make sure the plan is being operated correctly. “This is a great form of self-audit to do now, and when leaving a vendor, doing so will help plan sponsors realize and correct errors upon exit, rather than having to request past records later,” she says.

One way to deal with paper forms is have them all go through benefits staff first. Brower stresses that plan sponsors especially need access to forms for spousal consent. Another thing to do, she says, is periodically obtain a sample of forms as a type of self-audit. This way the plan sponsor gets familiar with how to access forms. It should ask the vendor if that will change if the relationship ends.

Information requests from prior clients may not be a top priority for vendors. Brower points out that it takes up vendors’ time, and plan sponsors should not expect it for free. She suggests offering to pay. “That will make it more of a priority, and it’s a good use of funds. It probably won’t cost much, and you will get things more quickly,” she says.

However, sometimes plan sponsors can offer money, but the vendor just doesn’t have the access to records to give plan sponsors what they need, Brower notes. The vendor may have been acquired and/or adopted a new system, and someone decided what would be kept and what would be acceptable to not retain.

She suggests that when a plan sponsor first hears that a vendor merger or acquisition is happening, it should discuss with its adviser what records it wants to make sure it has access to and make an early request. “The old recordkeeping system may be available initially, but it is not common that the old system will be around forever,” she says.

“I think plan sponsors sometimes assume if something is important to the operation of the plan, a prior vendor will keep that in mind and protect the plan sponsor, but plan sponsors need to be more proactive,” Brower concludes.