IRS Looking for a GUST Restatement

[austin3515]

We don't have it (it was 3 providers ago and they purge data after 7 years, and this has been 10!!). What do you think they will do? Anyone been in this situation before?

[QDROphile]

What caused the request for the document?

[austin3515]

They just asked for it out of the blue. Audit went fine and then on review the "manager" said "wait a minute, this has been to easy for this law abiding tax paying citizen - we need to make them fear the big bad IRS."

That's my theory anyway, I don't have any proof...

[My 2 cents]

Is there a distinction between data and plan documents? Purging official (albeit superseded) plan documents after 7 years seems a bit riskier than purging individual account information after 7 years. Were there any restatements since the GUST document other than the EGTRRA?

Did the EGTRRA restatement receive a favorable determination letter? Why are they reaching so far back?

[austin3515]

Is there a distinction between data and plan documents? Purging official (albeit superseded) plan documents after 7 years seems a bit riskier than purging individual account information after 7 years. Were there any restatements since the GUST document other than the EGTRRA?

What's done is done, and I can't say I blame them for purging it. And we're talking about a small medical practice here... It was a PT document, and the plan has been restate a few times including for EGTRRA. But we did not apply for a Determination letter (which apparently the IRS thinks is ok since they banned the practice).

[austin3515]

My real question is that now they are asking for it, we don't have it, so what will happen? I have heard of them digging for this stuff before for no apparent reason. About 10 years ago some asked me for a TRA 86 amendment.

Believe me, the audit was squeaky clean. Nothing at all came up. This was an afterthought.

[J Simmons]

ERISA section 107

Every person subject to a requirement to file any report or to certify any information therefor under this subchapter or who would be subject to such a requirement but for an exemption or simplified reporting requirement under section 1024(a)(2) or (3) of this title shall maintain records on the matters of which disclosure is required which will provide in sufficient detail the necessary basic information and data from which the documents thus required may be verified, explained, or clarified, and checked for accuracy and completeness, and shall include vouchers, worksheets, receipts, and applicable resolutions, and shall keep such records available for examination for a period of not less than six years after the filing date of the documents based on the information which they contain, or six years after the date on which such documents would have been filed but for an exemption or simplified reporting requirement under section 1024(a)(2) or (3) of this title.

I think that the work papers and source information for f5500 reporting only needs to be kept for 6 years after this purpose.

ERISA section 209

(a)

(1) Except as provided by paragraph (2) every employer shall, in accordance with such regulations as the Secretary may prescribe, maintain records with respect to each of his employees sufficient to determine the benefits due or which may become due to such employees. The plan administrator shall make a report, in such manner and at such time as may be provided in regulations prescribed by the Secretary, to each employee who is a participant under the plan and who—

(A) requests such report, in such manner and at such time as may be provided in such regulations,

(B) terminates his service with the employer, or

© has a 1-year break in service (as defined in section 1053(b)(3)(A) of this title).

The employer shall furnish to the plan administrator the information necessary for the administrator to make the reports required by the preceding sentence. Not more than one report shall be required under subparagraph (A) in any 12-month period. Not more than one report shall be required under subparagraph © with respect to consecutive 1-year breaks in service. The report required under this paragraph shall be in the same form, and contain the same information, as periodic benefit statements under section 1025(a) of this title.

(2) If more than one employer adopts a plan, each such employer shall furnish to the plan administrator the information necessary for the administrator to maintain the records, and make the reports, required by paragraph (1). Such administrator shall maintain the records, and make the reports, required by paragraph (1).

(b) If any person who is required, under subsection (a) of this section, to furnish information or maintain records for any plan year fails to comply with such requirement, he shall pay to the Secretary a civil penalty of $10 for each employee with respect to whom such failure occurs, unless it is shown that such failure is due to reasonable cause.

If you are purging (albeit after 6 years) plan documents, like the GUST restatement, how do you prove the benefits to which the employee is entitled?

[austin3515]

yes, but what will happen? Will they cuff the client and drag him away? Send him a letter saying he was a bad boy but do better in the future? Fine him $25,000??

I'm willing to concede that he should have kept the documents

[J Simmons]

yes, but what will happen? Will they cuff the client and drag him away? Send him a letter saying he was a bad boy but do better in the future? Fine him $25,000??

I'm willing to concede that he should have kept the documents

They could take the position that there's a document failure, and propose a CAP resolution. Last time I dealt with that situation (2003), the CAP fee was $3,000 per plan (client had two plans).

[austin3515]

IF he has to cough up $3,000 (plus attorneys fees) for not finding a document that is 12 years old, I will be advising that he calls his senator!!

[MoJo]

"IF he has to cough up $3,000 (plus attorneys fees) for not finding a document that is 12 years old, I will be advising that he calls his senator!!"

Senators cost a lot more than $3,000....

Sorry - couldn't resist.

First, my experience is that they ALWAYS ask for the prior document - so I'm surprised this was an "afterthought."

Second, I have had "some" success in showing through other means that the document existed and was valid (a determination letter helps, corporate resolutions, ancillary documents (SPDs, etc.), emails and other correspondence...). It doesn't "eliminate" the problems, but may lessen the impact (penalty).

Third, reminds us that when bringing in a new client, we should have on our "checklist" prior documents, prior service providers, and their policies on document retention. Better to solve the problem (if possible) at that honeymoon stage of the relationship....

[david rigby]

Ask company attorney and/or accountant if they have a copy?

[Belgarath]

We've had only a few plans audited recently, but the auditors have asked for GUST documents. You don't want to even get me started on my personal opinion of this requirement...

[Lou S.]

The audits we've had have asked for GUST and everything after.

I suspect after PPA restatements become a bit more common they will ask for EGTRRA restatement and everything after but this is just my best guess.

[Flyboyjohn]

The last 2 audit cap sanctions our clients experienced were $5,000 and $12,000 so if it's "only" $3,000your client should consider themselves lucky.

[§#$%!]

I thought the IRS must rely on the lastest DL. Am I wrong with that assumption?

Also, I thought only the DOL can request for prior documents in an audit.

[austin3515]

$5,000 and $10,000 for not having a GUST document that was 12 years old??? The humanity!

[MoJo]

"$5,000 and $10,000 for not having a GUST document that was 12 years old??? The humanity!"

It's all about revenue generation.... Didn't you know the IRS and DOL are "profit centers"?

Continuity of "qualified" documents is a requirement for the plan to remain qualified currently. Problems in the past continue to the present.

[austin3515]

Do you seriously think that more than half of plan sponsors could produce a document more than 10 years old? I don't know where I put my 1040 from 2013!! Does this not smack of "looking for trouble where you know you'll find it just for the sake of causing trouble (and yes "profits")? Picking the low hanging fruit, or fishing in a goldfish bowl with a friggin net?

[MoJo]

You know, businesses have to retain documents for ALL kinds of purposes. If they don't/can't, well, frankly, maybe they shouldn't be in business.... In the DB context, plan sponsors have been retaining records for DECADES - just so they can calculate the benefit when due. Most "good" service providers will retain the documents as a convenience to their clients - but that isn't an excuse for the client not to save copies as well. If they don't, then that, in my humble opinion, would be a reason to find another service provider. Most "good" service providers will check with the client/former client BEFORE they purge documents (because, guess what - they don't actually "own" them). "Good" service providers will ask for them when they bring on a new client, because, gee - if you are operating the plan, you want to make sure it's done right, and history can have a bearing on that (and many, many times, current documents have an inadvertent change from a prior document, and the plan is operated inconsistently with the "current" document, but consistently with the prior document). I work with a couple of accounting/plan auditing firms providing a "pre-audit" audit (an audit before the DOL or IRS comes in). Number 1 on the checklist is current, complete, executed documents. Number 2 is historical document (complete, executed) back as far as possible. If they can't find or produce docs back to GUST, we start contacting ALL current and prior service providers to find them - and then prepare the client for what could happen if the plan is audited by the DOL or IRS. Fore warned is fore armed.

Scanning, filing, backing up, storing and the like are very, very, common business practices and have been for many years. Not doing so just isn't an "excuse" anymore.

Heck, I'm a sole practitioner working from a home based office, and I have a NeatDesk scanner and software and about 8 terabytes of storage/backup, plus cloud backup services for my and my client's documents. Total cost, less than a grand - and when I need more storage, I just add another NAS storage unit....

I really don't think it's an onerous requirement to have to maintain files of operative plan documents back to the preceding restated document....

p.s. I have every tax return I ever filed - both as a pdf, and as a TurboTax file (ever since I've been using that software (quite some time))....

[austin3515]

"You know, businesses have to retain documents for ALL kinds of purposes. If they don't/can't, well, frankly, maybe they shouldn't be in business.... "

Are you referring to Fortune 500 companies? Businesses with 1,000 employees? Perhaps that's why it seems like we're on two different planets. I don't think it is even remotely fair to tell a very successful CPA (with 5 or 6 employees) that he should not be in business because he cannot find 20 pieces of paper stapled together that is over a decade old.

[i should confess I was exaggerating about my tax returns; I have them all for quite a few years, most certainly the one I filed 3 months ago, and I have taken to scanning everything in and saving pdfs, which I have for the last 3 years].

[MoJo]

Any business has record retention requirements. It matters NOT how large or small it is. Gee. My mom was an antique dealer - and she had to maintain records of 1) purchase cost; 2) sales cost (the difference between one and two being gross revenue for tax purposes - and sometimes the difference between purchase and sale could be YEARS. Indeed, she's been dead for 8 years now, and my brother and I have her remaining inventory, and I could tell you exactly WHEN and for HOW MUCH she paid for each item - some being bought in the late 1970's)); 3) taxable and non-taxable sales (sales to other dealers being non-sales taxable); 4) other expenses (including mileage for travel to buy or sell her inventory); and 5) every sales tax "license" for each state she ever sold anything in (she used to do antique shows in 7 different states) - AND be able to produce all of that anytime a regulator requested it (and state sales tax agents ROUTINELY audited people at shows). She owned a computer (a desktop) that was used only for playing Solitaire....

She was a "one woman" business. Not difficult - even for a computer illiterate senior with an accordion file, bound notebook and a pen.

So, YES, I expect EVERY business to retain the relevant documents for their business - and that includes historical plan documents....

And by the way, "a successful CPA" with 5 or 6 employees - CHARGED with reviewing other peoples records OUGHT to be able keep his or her own in order.... I'll bet they can find their tax returns and the documents used to create them....

[austin3515]

Well clearly you set the bar very high for mere "adequacy." I only hope your clients are able to live up to such high expectations.

[SearchLight]

Out of curiosity, I pulled up the new Form 5310 instructions to refresh my memory on how far back your documents have to go in that scenario. In addition to supplying the current document, there's this:

"Note: If the plan does not have a DL for the preceding RAC (remedial amendment cycle), the plan sponsor must include with this application filing copies of interim and discretionary amendments adopted for the preceding cycle."

This is a change from the old 5310, which made you go back as far as the last DL. It's a small movement, but does at least show some acknowledgement that DLs are becoming a thing of the past for many plans and provides some clues as to what the eventual outer boundaries might be.

[KJohnson]

Although this is for determination letters, the IRS did issue this QAB with regard to verification of prior documents.

http://www.irs.gov/pub/irs-tege/qab_102411.pdf

[K2retire]

Do you seriously think that more than half of plan sponsors could produce a document more than 10 years old? I don't know where I put my 1040 from 2013!! Does this not smack of "looking for trouble where you know you'll find it just for the sake of causing trouble (and yes "profits")? Picking the low hanging fruit, or fishing in a goldfish bowl with a friggin net?

I've heard former DOL agents say they are specifically coached to look for low hanging fruit.

[MoJo]

"Well clearly you set the bar very high for mere "adequacy." I only hope your clients are able to live up to such high expectations."

Being snide does not become you, Austin. I don't think this is a very "high" bar for "adequacy. I think it is a minimalist bar for one who engages in a business who CHOOSE to sponsor a retirement plan, and the barest of minimums for professionals seeking to assist those who engage in such endeavors.

Set the bar any LOWER, and your client get's a painful awakening when a regulatory audit comes around.

[austin3515]

"Being snide does not become you, Austin." IT doesn't become me, but it suits my on-line persona just fine .

And I think you'd be shocked at how many of your clients cannot find a document more than 10 years old. After all 10 years ago, they were in a different office, with a different CFO and using a different provider (all made up facts but very very realistic).

Would it surprise you to know that I have clients who have forgotten to fund their 401(k) contributions for a pay-period?

[My 2 cents]

To leave no stone unturned, and while it may turn out to do no good, an attempt should be made to check with the sponsor (of course, already done and, presumably, done at least a second time to make sure), the sponsor's attorney, the sponsor's accountant, the sponsor of the most recent pre-approved restatement, and as many of the prior service providers who can still be located. A friendly inquiring email would not take much effort. You never know, someone may be able to produce the GUST restatement.

Without a copy of the GUST restatement, how was it even possible for the sponsor of the EGTRRA document to draft a proper EGTRRA restatement?

Granted, the GUST restatement would have been adopted over 10 years ago, but until a much more recent date, it WAS the current document.

[austin3515]

"Granted, the GUST restatement would have been adopted over 10 years ago, but until a much more recent date, it WAS the current document"

Yes, that's the counter argument! But of course clearly every year that goes by more and more documents get "locationally challenged"

You won't believe this. just got an mail from another CPA, where one of their clients is being audited. They want he original signed plan documents from, you guessed it, 2002. Mind you, the audit has not even started and they are looking for it. Beware, it seems we have an epidemic. There must have been some retreat recently where all the auditors came together with a plan for big Christmas Bonuses.

I can tell you that as a general rule on audits I have not as of yet been required to provide such ancient documents (at least on a regular basis). This seems to be a new trend...

[SearchLight]

I've been on the receiving end of those inquiries, and more often than not I've been able to help - it's a hassle sometimes, but a good karma builder. It's part of why I also recommend to new clients not to burn their bridges with past providers, even if they're really unhappy with the service they were getting. In this business, you just never know when that provider you loathed will be your last hope to escape a more threatening foe.

I'd love for the IRS and DOL to get their act together and set a reasonable boundary, but until then, my clients get one message - Plan Documents Are Forever.

[MoJo]

"And I think you'd be shocked at how many of your clients cannot find a document more than 10 years old. After all 10 years ago, they were in a different office, with a different CFO and using a different provider (all made up facts but very very realistic).

Would it surprise you to know that I have clients who have forgotten to fund their 401(k) contributions for a pay-period?"

No, i wouldn't be shocked. In fact, I make my living working for TPAs, Financial Advisors, and their clients fixing stuff like this. What does shock me is that after ONE of their clients gets hit with a penalty (the largest I've seen was "disqualification" costing the owner of a two employee business 75% of his $500,000 account balance), there are still TPAs and advisors out there who don't take this stuff seriously, and KEEP BETTER RECORDS, and BEFORE IT'S TOO LATE, go back to prior service providers and collect EVERYTHING you can before they retire, die or go to jail.

"I can tell you that as a general rule on audits I have not as of yet been required to provide such ancient documents (at least on a regular basis). This seems to be a new trend..."

I don't know where you are, or what your business looks like, but in Ohio, southern Michigan, western Pennsylvania and northern Kentucky - where the bulk of my business is, it's been routine for quite some time to have to produce BEFORE the audit, the PRIOR restated documents and all interim amendments.

Even in southern California (where I also do business for an advisory group) it's pretty common for both the IRS and the DOL to ask. Indeed, that group (and all it's branches) has a checklist compiled by comparing all of the regulatory audit requests and listing the common items EVERY auditor asks for - and have designed their e-vault to hold ALL of those documents. Do all of hteir clients have them all? No, but WELL IN ADVANCE those clients are made aware of the risks and, at least, change their behavior going forward.

[MoJo]

Searchlight: Plan Documents Are Forever.

Amen!

[austin3515]

there are still TPAs and advisors out there who don't take this stuff seriously,

Are you suggesting that I go willy nilly about the office shredding old plan docs and telling clients "go ahead toss the document, who needs it!"? Is it possible that perhaps I'm just being realistic? You can call me snide if you choose (and perhaps I am being snide with you!) but to tell me I don't take my job seriously is actually one of the more offensive things you could say. I have every document I ever wrote, with a signed copy for the last 8 years (which is when I started). Either that or I've harassed the client for the signed docs. We are diligent. But there are things beyond our control.

But I think you alluded to an important point which is that you don't work with a "regular" client base. For better or for worse you don't see what it's like in the real world with real people with the very real problem of keeping track of myriad documents from all sorts of different companies (and that's JUST employee benefits, forget about tax returns and the like), all of which should be kept "forever". [note: I'm talking about small companies here, less than 100 employees, generally - the big boys are more in line with the "nothing but perfection standard, as well they should be].

[Peter Gulia]

Now that we've heard a range of views about what might or might not be reasonable expectations for how an employer keeps or discards documents and records, let's turn to a practical question for TPAs and other employee-benefits service providers:

What (if anything) should a TPA tell its client about how long to keep a document or record the TPA prepared or furnished?

Some say they like a cover letter or e-mail that transmits a report to include one sentence that describes a suggested minimum retention time. (For example: We suggest you keep the enclosed report about your plan's coverage and non-discrimination for 2013 until at least November 2020, and then get your lawyer's advice about whether destruction of the record is proper.) They like this because, when the client can't find a record it should have kept and whines 'why didn't you tell me?', the TPA will have some evidence that the employer's failure isn't the TPA's fault.

Others say a TPA should not volunteer information beyond the services the TPA contracted.

What do you think? Would including a suggestion about records retention be helpful or harmful?

[MoJo]

First, I said nothing about your capabilities, or your business model. What you said, however, is that you have every single document YOU wrote. What about the documents you wrote those documents from? In other words, what about the prior plan document - and unless your business is exclusively start-up business, there will be prior documents that must be taken into account when drafting a new document.

Second, I cal BS on your comment that I don't work in the real world. I have worked for TPAs, bundled recordkeepers, law firms, financial advisors and corporations. I've been in this business since 1982 (DEFRA, TEFRA & REA have my teething marks on them). I support ALL of the clients of the current FA's I'm associated with, and that includes over 350 clients nationwide, with a little over 12 billion in assets. They range from sole proprietorships to Fortune 100 companies (and yes, there are differences in approach to business - but MY job, and the job of the FA's I work with is to make sure these clients - ALL OF THEM, do things the right way.

And regardless of which entity I've worked for over the last 32 years, the mantra has ALWAYS been the same. Preservation of historical documents is a MUST - until the plan terminates and the statute of limitations runs (and even then, just to be safe, keep them longer). And by the way, when I managed "conversion teams" at both bundled recordkeeper and TPA firms (the most recent being at a TPA in the small/micro plan market), WE ALWAYS START WITH THE PRIOR DOCUMENTS, AMENDMENTS, DL's, AND EVERYTHING ELSE WE COULD GET. Do they always have it? No, but part of our job was to find it, document what we couldn't find, and consult our clients on the risks they've undertaken - and not to do it again.

Frankly, if they don't, we encourage them to seek other assistance because it isn't worth the effort to keep bailing them out. It's amazing how cooperative they are when you explain to them what the rules are, what the consequences are if they fail to follow the rules, and how much you'll charge them if they don't.

And for the record, until last year, I worked as an employee of a TPA - dealing in the micro market (100 employee companies were rare) and it was the same thing there - we worked to keep our clients on the straight and narrow.

Get a clue Austin. This business is about keeping clients OUT OF TROUBLE. They look to their service providers (ALL OF THEM) to do so. Much of this business is a commodity. The differentiators are getting smaller and smaller. And when a problem arises, the easiest and fastest fix is to dump the TPA - whether it's their fault or not. FA's are real quick to lay blame on someone else - and the TPA is "in charge of the documents." This is especially true in the under 100 employee market space.

[MoJo]

"What (if anything) should a TPA tell its client about how long to keep a document or record the TPA prepared or furnished?"

...forever...

and everything we send a client (except for birthday greetings!) contanis: "This document should be retained as part of the permanent plan records. We've filed a copy of this document in your e-vault, but you should retain a copy as plan sponsor, as well."

And the people I work for offer services to collect and e-store that information. If the relationship terminates, the client gets a DVD burned with EVERYTHING.

[Peter Gulia]

MoJo presents one clear outlook; any different views?

[austin3515]

MoJo, I think the more we discuss the more it comes out that we are almost in 100% agreement. I think the only difference in our thought process is what it says about employers (and their administrators) if these "very old" documents cannot be located. That and how much we belabor the old document issue when we take over a new plan. Perhaps it would be considered a better level of service to go back 12 years for documents, but I think too it might be perceived as creating a big project to mitigate a remote risk. I just don't think it would be a good way to start a new relationship, and frankly I just don't think it's my responsibility to make sure they have copies of documents from all their past providers.

And by the way, "yes" I do have the documents that we based our initial restatement on.

But I will tell you this, you have gotten me thinking, as has Fiduciary Guidance. We do a quarterly newsletter and we have a standard year-end letter. I do think I will be adding something to both to the effect of "the IRS has gone off the deep end, better make sure you have your documents in order since the beginning of time." So it would be the cousin of the commentary regarding "better make sure you get your deposits in yesterday." We have that latter commentary in about 5 different letters and notices.

[MoJo]

I think our most significant difference of opinion, Austin, is whether or not it is the new TPA's responsibility to obtain/track old documents, or, in your words, avoidance of the perceived big project involved in getting them/maintaining them.

I'm in the midst of a search for TPA services for a client who recently acquired another company, has a mix of union and non-union plans, a DB plan, and not a lot of staff to coordinate it all. A significant portion of the RFP (the answers to which I truly am currently reviewing now) includes the issues we're discussing - gathering, reviewing, maintaining and archiving of important plan documents (especially considering this is a company grown through M&A activity, with "history" out the wazoo). Can't/won't provide the service? D*E*S*E*L*E*C*T*E*D, regardless of the other service offered (which, basically, are the commodity "testing" services).

I think it's a good idea to inform your clients of the requirements of document preservation, but I disagree that "the IRS has gone off the deep end" as that implies there isn't a valid reason for their requesting the documents.... There is. Portraying the requirement as "silly" leads clients to think it really isn't that important. It is.

Just last year I dealt with 13 clients that were "non-amenders" at some point in time (one was actually a "virgin" ERISA document established in 1979 and NEVER updated (special case)..... 10 of those were under "audit" (7 DOL, 3 IRS) and the "chain" of documents were found to be deficient. Of those 10 - ALL had current valid documents (because we wrote them) but were missing previous restatements and/or interim required amendments. They haven't gone off the deep end - they are simply enforcing the rules. Maybe more vigorously than before, but the rules, nonetheless.

And by the way, 8 of those 13 (including the "virgin" document) came tot he TPA I was working with BECAUSE of the prior TPA not being thorough.

[SearchLight]

Austin, I'm sure we can all do better in reminding clients about retention. This topic came up for me recently when I had a new client who had to reach back to 2 providers ago to locate some records, so I've made the recommendation for the intake team to talk to clients about the subject, at least in a high-level way. At a minimum, a client needs to be aware if their records are incomplete and make a conscious decision about how they want to handle that rather than simply assume that missing records are no big deal.

I agree that new clients (and their advisors, where present) are often eager to simply get things moving and dislike the dig-around-in-the-file-cabinet aspect of changing providers, so many are reluctant to drink the records-retention water we lead them to. If they balk or decide against a VCP to fix a defect, I can understand their point of view even if I don't endorse it. It eases my mind to call attention to it, though, and it gives me something defensible to point to when the inevitable "you never told me about that!" conversation comes up.

[austin3515]

I agree with every word you wrote SearchLight. Thank you!