By Jeff Chang
In earlier posts, we discussed the plan documents you should keep as well as some of the policies and procedures you will need to properly maintain and administer your governmental 401(a) or 457(b) plan. This post discusses the participant-level records that you may need to keep in order to determine the benefits due, or which may become due, to plan participants, their spouses, beneficiaries, and alternate payees. Although governmental plans generally are not subject to ERISA, the inclusion of ERISA-like fiduciary duties and responsibilities in authorities such as the California Constitution, definitely make the guidance and rules promulgated by the U.S. Department of Labor (DOL) relevant to California’s public sector plans.
Based on the DOL’s guidance, and plain common sense, here are a few suggestions regarding the retention of participant-level records:
- The ability to pay benefits to participants and their beneficiaries rests on the plan’s ability to find and contact the persons entitled to the benefits (whether they are former employees, spouses of former employees, beneficiaries of former employees, or the alternate payees of current or former employees). A critical part of keeping proper participant-level records is keeping track of (and being able to contact) former employees, spouses, beneficiaries and alternate payees. If your plan encourages (or requires) participants to keep their plan accounts for years or decades after they terminate employment, you may be unnecessarily creating administrative or communications problems for your plan and human resources department.
- If you or your plan relies on a third party administrator or recordkeeper to help collect and retain participant-level records, do you (and will you) have access to all of this “mission-critical” information if something happens to your recordkeeper or its systems? If this information is kept in electronic form, or in the “cloud,” do you have the ability to immediately access it and print it out? If you have migrated between recordkeepers, are there any gaps in your participant-level records?
- Because participant-level records are used to determine or pay benefits, you will need to retain the following, on a more or less permanent basis:
- Social Security Number
- Mailing address and email address
- Date of hire, rehire, termination, retirement
- Eligibility date
- Payroll records, including plan compensation
- Contribution election forms (don’t forget all “special” elections, election changes, catch-up elections, etc.)
- Investment elections and change forms
- Contribution/allocation/deferral amounts
- Marital status and designated beneficiary
- If married, name of spouse and current address if different than participant
- Records of any withdrawals or distributions, including distribution request forms
- Record of any Qualified Domestic Relations Order, including contact information for the alternate payee and his/her counsel
- Plan loan documentation
- Service records, if needed for vesting or benefit determination
- Periodic account balances
- Rollover requests
If you or your plan fails to keep sufficient records to accurately make the necessary benefit determinations, the plan could end up paying more (or extra) as a result. Depending on how your plan is designed and operated, you could have terminated participants with account balances that have been “sitting there” for decades, and their marital or beneficiary “situations” likely have changed. The difficulties associated with keeping up-to-date records and information should lead a number of plans to “encourage” terminated participants to take their monies when they leave employment.
Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at firstname.lastname@example.org or (916) 329-3685.