Working on an IRS audit is hard enough. But what\u2019s even harder? When you discover the plan sponsor disposed of\u2014or claims to have disposed of, the very records the IRS is demanding.<\/p>\n
Let\u2019s not kid ourselves: that\u2019s a hostage to fortune. You can\u2019t defend what you can\u2019t prove. And you can\u2019t explain away a missing spreadsheet from 2015 just because \u201cwe thought we didn\u2019t need it anymore.\u201d That\u2019s not a defense, it\u2019s an admission of negligence.<\/p>\n
Here\u2019s the cold, simple truth:<\/p>\n
1. Plan sponsors have to keep the records. The IRS, under the retirement plan rules, requires you to furnish complete, accurate records \u2014 in paper or electronic form \u2014 when asked.<\/p>\n
2. Some records must live forever (or close to it). ERISA doesn\u2019t just say \u201csix years and toss the rest.\u201d Under \u00a7 209, you must keep whatever records are necessary to determine a participant\u2019s benefit\u2014because benefits last a lifetime.<\/p>\n
3. You can\u2019t rely on your service provider to fix your mess. Even if you\u2019re using a great TPA or administrator, the legal obligation rests squarely on you (the sponsor). If they purge or misplace records, you\u2019re still on the hook.<\/p>\n
4. \u201cWe destroyed it\u201d won\u2019t cut it. If you destroyed records you were legally required to preserve, that invites the IRS (or DOL) to assume the worst. For missing records, the burden often shifts to you, prove a negative.<\/p>\n
5. The remedy is always: don\u2019t let this happen in the first place. A written records-retention policy. Regular backups. Migrations when switching providers. Indexing. Document control. All that boring but essential stuff.<\/p>\n
Bottom line (no fluff): If you\u2019re a plan sponsor and you have been lax about recordkeeping \u2014 and now you\u2019re facing an IRS audit, you\u2019re already behind. The only hope is that you have partial records, internal logs, or corroborating evidence. But don\u2019t count on miracles.<\/p>\n
If your plan is still relatively clean, double down now. Clean up your document retention policy. Audit your backups. Make sure nothing gets tossed unless you can legally toss it. Because in an audit, the IRS doesn\u2019t want excuses. They want proof.<\/p>\n
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