Retirement plan records: What to keep for IRS purposes
Wednesday, February 25, 2015
Do you ever wonder what records your organization needs to keep and what should have been thrown away years ago? Retirement plan records certainly fit into the "wondering" category.
Here is the bottom line regarding retirement plans: If you are audited, you are required to provide complete, accurate records in either paper or electronic format if, and when, the IRS comes calling.
Here is a partial list of important documents, what I call "keepers." As a plan sponsor, you should keep the following:
- Plan and trust document and recent amendments
- Determination and approval letters
- Participant and employer records
It certainly is easier if you have had one provider since the beginning of the plan. If you have changed providers, that complicates matters a little. Basically, if you change providers, make sure you get the records — or ongoing access to them — from your previous provider.
How long do you need to keep the records? Essentially, they need to be kept for the life of the plan. An audit can go back to the beginning of the plan.
Audits have become an increasingly large part of the IRS Action Plan. The history of audits goes back to the mid-1980s.
For decades, the IRS paid little attention to 403(b) retirement plans. However, during a general audit of a New York nonprofit hospital, one of the eagle-eyed auditors took a look at the contribution amounts made to the plan. They were surprised to see that there was significant overcontributing.
That is, individuals were being allowed to contribute more than the contribution limits allowed by law. That opened up a general retirement plan audit, beginning a process that still continues.
What the IRS also learned from that experience was that the IRS had little auditing expertise in house. They started by putting a team together and bringing all the 403(b) regulations together for review, comment and updating. That whole process took almost five years.
After that process was essentially complete, they began specialized training for a specific group of agents dedicated to this one issue. Beginning with that small cadre, they began auditing a selected group of hospitals nationally.
As expected, numerous discrepancies were discovered and remedial action taken. Meanwhile, the IRS publicized what was happening to all the other segments of the 403(b) marketplace.
The next focus of IRS auditing was public schools. Then they moved on to other types of 501(c)(3) secular organizations. This included organizations such as museums. Colleges were next on the list.
As you can surmise, the IRS has systematically worked its way through many of the different types of nonprofit entities. It makes sense that they went after the largest organizations first, as this is where most of the assets reside.
The IRS has audited few religious organizations' retirement plans, and no churches, to my knowledge. When will that happen? Stay tuned and be prepared. Retain the documents referenced above. There is nothing better than having all the documents available when the auditors show up.
Retaining the right documents is one of those "little" things that can have a positively big impact.
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