Association Record Retention

There are a number of steps an association needs to undertake in creating a document retention policy. Each association should go through these steps on their own, as there is not a “one size fits all” model for record retention. The requirements will vary by association based on its size, state legal requirements, and also its business practices. The most important element for a good record retention policy is following the policy after it is created, as having a policy which is not followed is probably worse than not having a policy.

Below is a brief description of the process each association should undertake in creating a record retention policy. Following that is a list of different types of documents and some recommended time frames for how long the association should maintain these records. This is not intended to be comprehensive or even authoritative; rather, it is intended to serve as a guide for associations in creating these policies. Associations need consult with their attorney while creating these policies because state law will determine how long an association needs to maintain its records. A record retention policy adopted, and followed, by the association will reduce the costs and burdens of any future litigation.

A. Process for Creating a Document Retention Policy

1. Identify sources and types of information.

The association should gather together the employees who are familiar with the association’s documents and other information. Depending on the size of the association, the number of individuals could vary. A person familiar with how the association maintains electronic information should be at the meeting.

2. Identify and document current retention policies.

An association should determine what policies (if any) are currently governing its document retention policies and reduce those to writing, including its policies for retaining electronic information.

3. Evaluate existing policies.

The association should now decide whether its current policies are adequate. If not, the association should begin crafting a new policy.

4. Create policy.

Not only should the policy state how long certain documents should be retained, it should also state:

1. policy’s effective date and date of last review
2. person responsible for the policy
3. purpose of the policy
4. definitions (if needed)
5. process for preserving records if litigation arises or is likely

5. Legal review of document retention policy.

Once the association has created a policy, it should seek review of its policy by its legal counsel. The association could choose to involve the attorney at the fourth stage during the crafting of the policy.

6. Distribute policy to employees and make sure that the policy is being followed.

This is the most important step, as having a policy that isn’t followed will actually be worse if litigation arises than not having any policy.

7. Plan to periodically review policy to make sure it is still relevant.

Set a date in the future to assess the policy.

B. Issues to Consider When Creating a Document Retention Policy

A number of issues will arise during the creation of a document retention policy. A few are listed below:

Format: One issue for associations is the format used to maintain documents. Generally, there are no requirements on the type of format an association needs to use to maintain its documents and other information. Reducing paper documents to an electronic format will save physical space, but could present authentication issues in court. Therefore, all electronic documents should be stored in a read-only format or other unalterable format in order to demonstrate that the documents are in their original state.

Privacy Considerations & Proper Document Destruction: Certain types of records, such as employment records, are governed by privacy laws, either state or federal. Therefore, an association will need to be familiar with those laws and also any rules or other restrictions governing the destruction of these documents.

Other Legal Considerations: The legal requirements for each company will vary based on a variety of factors. For example, certain employment statutes require minimum numbers of employees in the work place before they apply to a business owner. IRS audits are generally initiated within three years, but the IRS can audit a return seven years later if negligence was involved and indefinitely in cases of tax fraud. So, each company will need to be aware of the laws which apply to their situation.

C. Creating a Document Retention Policy

Below is list of general documents that associations may maintain in their files. Next to each entry are some suggested legal time requirements for which the association should maintain these documents. These time requirements are conservative estimates, and do not prevent any organization from extending these time periods beyond these minimums. These requirements vary by state, and so you will need to consult with your attorney when creating the policy, as stated above.

Accounting Records

• Accounts payable (seven years)
• Accounts receivable(seven years)
• Annual financial statements (permanent)
• Bank statements (seven years)
• Bank reconciliations (seven years)
• Canceled checks- routine matters (seven years)
• Canceled checks- special (loan repayment, etc.) (permanent)
• Correspondence: routine (four years)
• Deeds and closing papers (permanent)
• Deposit slips (four years)
• Electronic payment records (seven years)
• Employee expense reports (seven years)
• Fixed-asset acquisition invoices (after disposal) (seven years)
• Freight bills (seven years)
• General ledgers (permanent)
• Income tax returns (permanent)
• Inventory count & costing sheets (seven years)
• Insurance policies (after expiration) (four years)
• Investments (after disposal) (seven years)
• Mortgages, loans & leases (paid) (seven years)
• Payroll journals & ledgers (permanent)
• Purchase orders (except accounts payable copy) (one year)
• Purchase invoices & orders (seven years)
• Receiving sheets (two years)
• Sales commission reports (five years)
• Sales records (seven years)
• Sales tax returns & exemption support (five years)
• Subsidiary ledgers (seven years)
• Tax returns (federal & state) (if applicable) (permanent)
• Trial balances (permanent)

Association Corporate Records

• Articles of Incorporation and amendments (permanent)
• Bylaws and amendments (permanent)
• Corporate filings (permanent)
• Corporate Minute Book (permanent)
• IRS Exemption Letter (permanent)

Electronically Stored Information

Specific documents in electronic formats will be treated according to the timeframes set forth elsewhere in the policy. The policy should state how long a association maintains information stored on its backup tapes and other backup systems. The policy should also state that the purpose of the backups is to restore the association’s computer network in the event of a crash.

Employment Records

• Documents relating to job recruitment: advertising, job orders submitted to employment agencies, interviewing, testing, hiring, training, demotions, promotions, layoffs, discharge, and other personnel decisions (one year)
• Employee benefit plan documents (duration of plan)
• FMLA leave records including: all FMLA information and notices distributed to these employees and records of any FMLA disputes.
• Garnishments / wage assignments (three years)
• Immigration I-9 forms (duration of employment plus one year, minimum of three years)
• Medical records relating to the exposure of the employee to any toxic or hazardous substances. (duration of employment plus 30 years).
• Payroll records showing name address, date of birth, occupation, rate of pay, and weekly compensation (three years)
• Personnel Records (ten years after employment ends)
• Record of all occupational injuries, including those under state workers compensation law and any ERISA awards (five years for ERISA; state law requirements will vary)

Legal Documents

• Contracts (ten years after expiration)
• License Applications (one year after expiration)
• Licenses (one year after expiration)
• Trademarks, Patents & Copyrights (permanent)
• Warranties & Guaranties (two years beyond terms of the warranty)
• Correspondence: legal (permanent)

MLS Documents

• Rules and Regulations (permanent)
• MLS Policies (permanent)
• Listing agreements (until expiration of listing)
• Sold property information (at least ten years)
• Lockbox key agreements/Leases (one year after agreement terminates)
• MLS Service Mark License Agreements (Permanent)
• Contracts (ten years after expiration)
• Subscription Agreements (ten years after expiration)
• Participation Agreements (ten years after expiration)
• Website Click-Through Confirmations (ten years)

NAR / Association Documents

• NAR charter (permanent)
• Territorial jurisdiction (permanent)
• REALTOR® Agreement (until superceded)
• Member file & membership applications (two years after membership terminates, with social security number and other financial information removed (if applicable)
• Professional Standards Hearing Records: Ethics (result of hearing- permanent; rest of hearing file- minimum of 1 year after satisfaction of sanctions (if any) and there is no threat of litigation)
• Arbitration / Mediation (minimum of 1 year after payment of award (if any) and there is no threat of litigation)

Property Records

• Deeds of Title (permanent)
• Leases (two years after expiration)
• Depreciation schedules (permanent)
• Property Damage (seven years)
• Property Tax (permanent)
• Appraisals (permanent)
• Blueprints / Plans (permanent)
• Warranties & Guaranties (two years beyond terms of the warranty)

Pension & Profit Sharing

• ERISA disclosure documents (six years from date disclosure was due)
• IRS Determination Letter(s) (permanent)
• Forms 5500 & plan documents (permanent)