Legal Requirements for Records Retention . . . The Three-Year Presumption!
A large number of records managers are responsible for researching and analyzing legal requirements for records maintained by their organizations. The process of performing this legal research was discussed in an earlier article.1 This article deals with the analysis of the most difficult legal requirements related to records retention – those laws which require records to be maintained, but do not specify a retention period and those situations where no requirements are found, even after extensive research.
[The reader should note that in addition to the legal requirements (like those discussed in this article), a records retention schedule must also consider operational (user), tax/audit, and historical requirements related to records.]
There are basically four types of legal requirements for records retention which are generally encountered:
- Specific Requirement Stated. Many federal and state requirements will indicate a specific retention period for records. The researcher must generally determine the scope of the statutes or regulations, the applicability of these requirements to the organization, and the specific records affected. A legally correct records retention schedule can generally be derived with sufficient time and patience.
- Limitations of Action. Limitations of action are not records retention requirements; instead, they represent the period during which an organization may be involved in a legal action or litigation (either as plaintiff or defendant). Records may be useful during this period to pursue a legal course of action or to defend oneself. The appropriate records retention period for legal purposes, therefore, relates more to litigation strategy rather than to actual legal requirements.
- No Retention Period Stated. A large number of statutes and regulations contain phrases such as “the following records shall be maintained . . . ” Although under this type of provision, records must be maintained, the organization is not provided sufficient information to determine how long the record must be maintained – days, months, years, or permanent! Unfortunately, many attorneys and non-attorneys alike, interpret this type of requirement to mean that the record must be kept “permanently” since no permission is given for destruction. Some strategies to deal with the situations are provided in the remainder of this article
- No Records Maintenance or Retention Requirements Found After Research. Even, after a reasonable research effort to locate records requirements, the researcher sometimes is unable to find anything that addresses certain records. Some have even expressed concern that an administrative agency has indicated that it is either “getting out of the records retention business” or will reduce the number of records retention requirements published. In both cases, researchers feel extremely uncomfortable and mistakenly establish long-term retention periods “in case they missed something.” Some recommendations and background related to these issues are also provided below.
NO RETENTION PERIOD STATED
Records managers will often encounter statutes and regulations which state that certain records must be maintained, but fail to provide a specific retention period. This type of provision is very typical; in fact, over 50% of all federal statutes and regulations do not state specific retention periods. 2
Recordkeeping requirements are generally imposed to assist government agencies in determining whether an organization is complying with the law or how a particular federal or state program is functioning. This information collection and monitoring process often imposes substantial financial burdens on the public. In order to minimize and control the burdens associated with the collection of information by federal agencies, the United States Congress passed the Paperwork Reduction Act in 1980. 3
This statute provides the framework to control the paperwork burdens that federal administrative agencies can place on the public and empowers the Office of Management and Budget (OMB), Executive Office of the President, to develop regulations to implement the Act and to provide ongoing monitoring of the process. The implementing rules and regulations became effective May 2, 1983 for federal agencies under an OMB regulation entitled “Controlling Paperwork Burdens on the Public”. 4
Under this regulation, all federal agencies are required to obtain OMB approval prior to imposing any paperwork burden on the public related to the collection and maintenance of any information through the use of reports, applications, questionnaires, or recordkeeping. In addition, all federal agencies were required to submit existing paperwork requirements for OMB review by December 31, 1983. No paperwork burden may be imposed upon the public until the regulation has been approved by OMB and has received an official OMB identification number.
The following excerpt from the regulation provides the guidelines that limits the discretion used by the OMB in evaluating paperwork requirements in the area of records retention:
Sec. 1320.6 General Information Collection Guidelines (5 CFR 1320.6)
Unless the agency is able to demonstrate that such collection of information is necessary to satisfy statutory requirements or other substantial need, OMB will not approve a collection of information
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(f) requiring respondents to retain records, other than health, medical, or tax records, for more than three years; [US 205-0010-00]
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The regulation states that the retention period may be no longer than three years unless the submitting agency demonstrates that a longer period is necessary or unless the records relate to health, medical, or tax records. Retention periods which are longer than three years can certainly be justified in certain circumstances; but, this should represent a very small number of records, perhaps less than 10% of the records maintained by most organizations.
First, even under OMB regulations, many records maintenance requirements are now law for which no retention periods have been stated. In the situation where an agency fails to state a specific retention period, we can assume that they have failed to justify the longer retention period required by the OMB regulations; otherwise, a specific retention period longer than three years would have been stated. The absence of a specific records retention period implies that the records retention period is no longer than three years and that records can safely be destroyed after that time. [Note: Legal counsel should review these conclusions prior to using the three-year retention period in actual records retention schedule. It should also be noted that the OMB regulations do not apply to federal recordkeeping statutes, although few recordkeeping requirements have been provided in federal statutes.]
Second, the argument has been made that most tax records need only be kept for three years (plus any extended audit period) under the federal Internal Revenue Code.5 Since tax records also constitute the majority of records maintained for long periods by most organizations, three years appears to be the de facto retention period for most records. It, therefore, appears reasonable in terms of reducing paperwork burdens and efficiently operating an organization to maintain most, if not all, records for the same three year retention period (with very few exceptions).
Third, seven states (Colorado, Georgia, Illinois, Maryland, New Hampshire, Oklahoma and Texas) have adopted the “Uniform Preservation of Private Business Records Act” (same as Uniform Rules of Evidence)6 or an equivalent law. Although the wording may differ slightly in these states, the essence of Section 2 of the uniform law has been preserved as follows:
UNIFORM PRESERVATION OF PRIVATE BUSINESS RECORDS ACT (UPPBRA) Sec. 2.
Period of Preservation
Unless a specific period is designated by law for their preservation, business records which persons by the laws of this state are required to keep or preserve may be destroyed after the expiration of three years from the making of such records without constituting an offense under such laws. [This section does not apply to minute books of corporations nor to records of sales or other transactions involving weapons, poisons, or other dangerous articles or substances capable of use in the commission of crimes.]
The UPPBRA states that a three-year retention period shall apply whenever a law does not specify a retention period. Destruction under this law will not constitute an offense; destruction in less than three years, however, may subject the organization to some risks.
The section in brackets was considered optional, although all four states kept the essence of that provision. The UPPBRA also contains provisions related to microfilm which have been covered in most states by the Uniform Photographic Copies of Business and Public Records As Evidence Act. 7
Finally, for those other states which have not adopted the UPPBRA, no specific law exists which creates a similar three-year records retention presumption for state records. As such, an organization assumes a greater risk when relying on the three-year records retention presumption when no specific records retention period is stated. An effective argument could be made, however, that since no specific retention period is stated, the records need only exist at some time – for example, one day – to meet the “letter of the law”. However, maintenance of the records for one day fails to meet the “spirit of the law” – the underlying purpose of the law to ensure that certain information is maintained for agency review. The courts would certainly require that the records be available to the agency for a “reasonable” period of time to ensure that the statute or regulation is being followed or to monitor the impact of these laws.
How long then must records be maintained when the law requires the records to be maintained but no retention period is stated? The answer is that these records should be kept for a “reasonable period of time” (rather than permanently). What is considered “reasonable”? Based upon the previous discussion related to federal records, and the existence of specific state laws in four states, a three-year records retention period seems to be reasonable.
In fact, it may not be necessary in many cases to even keep these records for three years. Instead, an organization can make a risk analysis to determine that the risk of maintaining certain records less than three years is extremely low or nonexistent. The records can then be kept to meet operational needs and then destroyed.
NO RECORDS MAINTENANCE OR RETENTION REQUIREMENTS FOUND AFTER RESEARCH
In addition to those requirements to maintain records for which no retention period is stated, records managers often cannot find statutes or regulations which address certain types of records. Some requirements are extremely difficult to locate while other requirements sought may not exist. Even an experienced researcher will rarely locate all records requirements related to the organization; generally some requirements will be missed. Failure to conduct (and document) adequate legal research, however, is never a valid excuse for not finding records requirements!
Since it is therefore practically impossible to find all the legal requirements in the first place and it is reasonable to expect that no legal requirements exist for some types of records, how should the records manager determine the records retention period for those records for which no legal requirements have been found? First, the records manager in coordination with legal counsel could determine that since no records maintenance requirements exist, there is no legal requirement to even keep the records. The records will merely be maintained to meet organizational needs and then destroyed. The risk that a legal requirement was missed during research must be evaluated in relationship to the cost savings and desirability of records destruction in less than three years.
Second, the records could be kept for a reasonable three-year period of time based on the discussion above. When no records requirements have been found after a reasonable research effort, the three-year may be considered since a three-year retention period appears to always be a reasonable period.
In case an actual legal requirement was not detected during research, the assumptions used in establishing the legal retention period at three years should be documented and preserved along with the actual legal research performed. If the records retention period is questioned by judges or administrative agencies, the organization can clearly show good faith in attempting to comply with the law.
Most records managers (and attorneys) seem to have difficulty in determining the legal requirements for records (1) when the law requires the maintenance of the record but does not state a specific retention period or (2) when no legal retention requirements have been identified related to a specific record, especially after extensive research. Based upon the federal
Paperwork Reduction Act as interpreted and implemented by regulations published by the Office of Management and Budget, there appears to be a presumption that no records required under federal regulations (not statutes) need be retained longer than three years unless the federal agency involved has stated (and justified) a longer retention period.
In addition, the majority of records maintained by an organization for long periods of time generally relate to tax matters and federal statutes provide a three year limitation of action for tax records (in most cases). It can reasonably be argued that since three years is the de facto retention period appropriate for most records, other records need only be retained for three years when no specific retention period is stated.
In the states of Illinois, Maryland, New Hampshire, and Oklahoma, the Uniform Preservation of Private Business Records Act specifies that records may be destroyed after three years without constituting an offense under the law (with some exceptions). The remaining states, can look to the laws in these four states for support and also use the presumptions related to federal records. An organization which destroys state records under the three-year records retention presumption, however, incurs a greater legal risk than when federal records are involved.
Finally, if no records maintenance requirements and no records retention periods were found after a reasonable search, it is reasonable to assume that no legal retention period need be followed. The records retention period can than be established just long enough to meet operational (user), tax/fiscal, or historical requirements.
The reader should note that this entire article suggests that the three-year records retention period may be “presumed” (with some exceptions) in those cases when a specific records retention period is not stated or when no legal requirement has been identified after extensive research. A “presumption”, however, is not an absolute rule or fact, and those following the presumption may take some legal risks.
The Association of Records Managers and Administrators can play an effective role in reducing the paperwork burdens of both large and small organizations by actively supporting legislation such as the Uniform Preservation of Private Business Records Act (Section 2.) to change the three-year records retention presumption into a three-year records retention reality. The resulting reduction in paperwork burdens could be monumental!
(c) Copyright Information Requirements Clearinghouse
1. See “Researching Legal Requirements for Your Records”.
2. See this publication, generally.
3. See “Paperwork Reduction Act of 1980”, 44 USC 3501-3520. Chapter 25 – Coordination of Federal Information Policy. [US 144-0010-00]
4. See “Controlling Paperwork Burdens on the Public”, 5 CFR 1320 (48 FR 13689, March 31, 1983, effective May 2, 1983); Title 5 – Administrative Personnel, Chapter III – Office of Management and Budget. [US 205-0010-00]
5. See “Some Considerations Related to Records Retention Requirements for Tax Records”.
6. See “Uniform Preservation of Private Records Act”, Uniform Laws Annotated, Volume 13, (same as Uniform Rules of Evidence). The following jurisdictions have adopted the UPPBRA or an equivalent law:
Colorado (1990): C.R.S. 6-17-101 to 6-17-106
Georgia (1991): G.C.A. 10-11-1 to 10-11-3
Illinois (1957): S.H.A. Chapter 116, Par. 59 to 64
Maryland (1957): Code 1957, Article 15B, Sec. 1 to 6
New Hampshire (1955): RSA 337-A:1 to 337-A:
Oklahoma (1965): 67 O.S.A. Sec. 251 to 256
Texas (1989): Bus. and Comm. Code §35.47
7. See “Uniform Photographic Copies of Business and Public Records As Evidence Act”, Uniform Laws Annotated, Volume 13, 1949. (same as Uniform Rules of Evidence). This law is currently in effect in 33 states and was repealed in several others in favor of the Uniform Rules of Evidence. The impact of this law is discussed in “The Legal Status of Microfilm and Other Duplicate Records” [020-3020-00].
The Skupsky Retention Method includes the same components found in traditional records retention programs. It differs more in the process than the appearance. Legal retention periods represent the period you keep records for legal reasons. User retention periods represent the period record users need records…