Is it legal to hold client materials?

[Guest GordonJ]

I am taking over a small 401k plan from a prior recordkeeper. The prior recordkeeper is charging a $100 fee to the client for the services of collecting the plan document, final accounting, etc. and shipping to me. In addition, the prior recordkeeper has stated that they will hold all materials until the client pays this $100 fee. Maybe they need the revenue and have to shake down even small invoices. Is this legal? Is it legal to hold client materials until an invoice is paid?

[Guest Sieve]

Although the documents are probably considered the client's documents in most states, there generally is a lien (by way of state statute) on those documents to the extent of unpaid fees. And, the $100 charge you mention is probably a fee mentioned in the service agreement between the prior recordkeeper & the client--it's typical to pay a fee at termination of services to collect all documents and records, but, frankly, most such fees that I've seen are far in excess of $100.

I've never heard of a challenge of those lien laws as being preempted by ERISA--but I suspect that preemption doesn't work. So, you'll probably not be able to get those documents (to the extent the client doesn't already have them) without paying the fee.

[david rigby]

A few prior discussions similar to this one.

Perhaps oversimplified, it boils down to the relationship, including written service agreement, between the vendor and the plan sponsor.

[J Simmons]

...it's typical to pay a fee at termination of services to collect all documents and records, but, frankly, most such fees that I've seen are far in excess of $100.

Sieve, what is the range you've seen? I've not seen more than $250, but that was just for the prototype, lead documents, not the individual adoption agreement or other documents specific to the employer.

[Guest Sieve]

I've seen as high as $350 or so for DC plans, although most are in the $200-$275 range. And I've seen even higher for DB plans. Then, of course, some charge nothing or next to nothing.

To me, it shouldn't be the plan documents that the client needs (since all clients should have received copies of plan documents and amendments along the way). It's the full testing history that the client usually does not have that I think is critical.

[J Simmons]

Shoulda, coulda, woulda.

[Below Ground]

Our agreement with clients defines our file as our property. The client is expected to maintain reports and documents as is proper. If the relationship terminates, we give the client 90 days to submit a written, itemized list. We will then provide copies for no charge of those items. (I note that we almost always suggest items that the client should insure are in files.) After that 90 days we move files to storage, so a request made after that time involves a fee, usually $100 - $200. This accounts for time spent to retrieve, organize and copy, and send to the client. Why should that service be free?

I contend that this is reasonable and fair; otherwise, is the expectation that we must forever hold files for a client? Can a client come back after 10 years and expect that we have that file in a current status? Doesn't the client have a responsibility to maintain appropriate records? The topic of the client having a responsibility is clear; especially, if they are told that they need to do so, and are reminded of the need at the close of the relationship. I certainly don't see $100 as a "shakedown", or even unfair. (If $100 has a big impact on your business, perhaps you should reconsider that venture.) In fact, I think that to expect that no fee should apply is grossly unfair to the service provider.

When we get a "takeover client" that owes a fee for provision of records, or other services provided but not paid for, and they don't want to pay that fee; I always re-evaluate taking that client. Why don't they believe they need to pay the fee? Of course, my "review of the situation" must consider if the outstanding fee is "fair". If the fee is fair, do I really want a client that looks like they could be difficult with paying for my service? That is just common sense.

[Bird]

We give clients the plan document when adopted and keep a copy for ourselves. We give clients a nice, bound report every year showing plan activity, etc., including a copy of the tax return. We keep copies of that, plus we keep our working papers.

I may not know the law very well because I fail to see how my copies are their property. If they ask for stuff we already gave them we charge for it - not much, frankly, but enough to cover the time spent on it.

I'm probably behind the curve but when we take over a plan, we get everything we can from the client and then and only then go to the prior TPA for missing information.

Now I see that the first post said "recordkeeper" and not "TPA" so I'm not even sure we're talking about the same issues.

[Guest Pam B]

Exit fees of some sort are becoming the norm rather than the exception. With DC balance forward plans, we are seeing fees ranging up to $500. This usually includes census data, loan information, past testing data, 5500s and plan documents.

If you are working on a daily valuation plan, the exit fees range from about $750 - $1,500, due to the extra work in liquidating the plan assets and preparing reports by participant by source and fund as of the date of liquidation as well as preparing everything listed above.

[Guest Pension250]

I am with a TPA and we also charge for what is always duplicate requests for data already sent. Clients dont keep their plan document, adoption agreement, SPD, copies of their annual reports...like they should. Because they can come to us to get copies of all our files, does not mean we should have to incur the time and expense of copying and shipping.

I would bet 100% that all documents that you are asking for are copies of things these clients were already provided. What you are asking for is that the TPA do a service for the client and copy everything for them again because they kept poor records.

$100 is a very small fee...we charge per document requested.

[Gadgetfreak]

I am also a TPA and wanted to concur with the others here. Everything in our files is what we send to the clients and what they need if they were to move to another TPA. We tell them to keep their own records. When they leave and they want copies of everything (we already gave them) we charge a fee to compile that information. The fee is based on how much work is involved in collecting the documents. Do we need to go back to storage (either on-site or off-site)? Have the files already been scanned? Are they on archived backups or still on our server? Are we e-mailing or mailing? Clients who leave on good terms (i.e. they always paid their bills and were bought out or something), we will make concessions in terms of sending them info before payment. Deadbeat clients need to pay us the fee before we even start compiling the Documents.

[Guest arendedric]

You are right on this. The clients have got to pay for the services that they are provided with, but the thing is that the people need to think if the same thing arises with them being on the other side. The TPA should be provided with the legal help to hold the clients documents until ready to pay for it. There are plenty of such cases where in it is the client who are on the wrong side and had to pay dearly for the misconduct.